Bank of America, UBS AG and JPMorgan Chase Sued By California Public Utility

Three major banks were sued today by a California public electric utility, the Sacramento Mununcipal Utility District (SMUD), which alleged that the banks coordinated pricing and accepted kickbacks in a scheme to pre-determine the winners of “municipal derivative” auctions.

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What are Municipal Derivatives?

Municipal derivatives are unregulated financial products, the value of which are based on the value of underlying assets, rates or indexes, in this case of municipal products. Derivatives create short term securities out of these longer term risk assessments; for example, stock options are derivatives, because their value is based upon the underlying value of the stocks the option is based upon.

The lawsuit claims that the banks engaged in price fixing and accepted kickbacks disguised as fees from bidder who were in return promised that they would be winners in the derivative auctions. The case comes as a result of a three year investigation into bid-rigging in the municipal derivatives market. Included in the suit are more than a dozen other banks, as well as CDR Financial Products, Inc., a California based derivative investment advisory firm.

More Money, More Problems

This lawsuit comes at a particularly bad time for Bank of America, just as the investigations into its controversial Merrill Lynch deal seemed to be losing steam. In addition, the added controversy of an antitrust lawsuit is bound to make the search for a new CEO to replace Ken Lewis even more difficult than it already is. Many have suggested that the difficulty in finding a replacement is due to the stigma that Bank of America has been receiving due to a controversy over its lack of disclosure concerning the details of the Merrill Lynch acquisition, and this case will not relieve any of the public scrutiny for the corporation.

About the banks

 

Chase

JPMorgan Chase & Co. (NYSE: JPM) is a leading global financial services firm with assets of $2.2 trillion and operations in more than 60 countries. The firm is a leader in investment banking, financial services for consumers, small business and commercial banking, financial transaction processing, asset management, and private equity.

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UBS Bank

UBS is a leading global wealth manager, a leading, global investment banking and securities firm, and one of the largest global asset managers. In Switzerland, UBS is the market leader in retail and commercial banking. With headquarters in Zurich and Basel, Switzerland, UBS operates in over 50 countries and from all major international centers.

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Bank of America

Bank of America is one of the world's largest financial institutions, serving individual consumers, small and middle market businesses and large corporations with a full range of banking, investing, asset management and other. It operates in 32 states, the District of Columbia and 30 foreign countries.

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