BofA How Low Will Thee Go?

Last week, BofA agreed to pay $137 million for defrauding municipalities of millions of dollars by rigging muni bids in its favor.

In 2007, BofA voluntarily informed the Justice Department of its role in this muni bond operation. Bank of America was involved in 88 cases involving muni bid rigging from 1998 to 2003.

What are Municipal Bonds?

Municipal bonds, or munis as they are called, are bonds issued by local government bodies (states, cities, counties, school districts etc.) to raise funds for their infrastructural needs like building schools, hospitals, highways, bridges etc.

Munis are attractive to investors since they are exempt from federal and state tax (only in the state where it is issued).

What is Bank of America’s role in this?

The money raised by a bond offering is invested till it is actually needed. This is where banks like BofA come into play. Banks can bid to manage this money when the money is not ready to be utilized. Banks take a percentage of this amount as management fees. This itself is a considerable sum and nothing to sneeze at.

Brokers called bidding agents facilitate this auction connecting banks with municipalities. Here’s where Bank of America got creative. They paid massive kickbacks (bribes) to these bidding agents to steer bids in BofA’s favor! BofA then disguised this bribe in the form of fees and passed it back to the municipality!

Remember, this is money set aside for building schools and hospitals! Taxpayers’ and investors’ money that is being squandered.

Now banks don’t work in isolation. If one bank has a dirty trick up its sleeve, the others have their own. Other banks caught in this scheme are JP Morgan, Wachovia (Wells Fargo) and the Swiss giant, UBS. Former executives of all these banks have plead guilty to the charges of fraud and conspiracy.

Why did Bank of America voluntarily inform the Justice Department?

So whey did BofA snitch? Here’s why. The Justice Department has a program whereby the first one to snitch is shown leniency during prosecution.

BofA was spared criminal charges in return.

What does BofA have to say about this?

“Bank of America is pleased to put this matter behind it and has already voluntarily undertaken numerous remediation efforts” and the usual “We are fully co-operating with the agencies…”

What did this entire operation cost us, the taxpayer?

According to estimates, about a billion dollars!

My thoughts

I know there were other banks involved, but I’m singling out BofA. Here’s why. Bank of America seems to be the crookedest of them all. When was the last time you heard anything positive about them?

Wikileaks has threatened to release a ton of information on a major bank and guess who is preparing a swat team? BofA! Wikileaks never mentioned the bank by name.

Bank of America was in the forefront of robo signing foreclosure mess. Even had the audacity to request a dismissal of the suit.

BofA foreclosed and then auctioned off homes whose mortgages were paid up!

The list goes on and on. As an investor I would be very hesitant to trust the financial firms just yet. Creative accounting is unpardonable in the investing world. Bank of America seems to be the ringleader of this practice.

Your thoughts!

I would love to hear them!

BofA photo credit

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8 thoughts on “BofA How Low Will Thee Go?

  1. RT @MoneyCone: BofA How Low Will Thee Go?

  2. I am never surprized by the audacity of those in power. When studying all of the derivatives crises which spanned decades (not just the recent ones) it seems as though when there’s an opportunity to profit, corporations line up to benefit whether the opportunity is legal or not.What do I think? Well, I don’t like it!

  3. @Barb: I agree. The bailout has actually made them more bold now that they know they can’t be shut down.

  4. The knuckleheads at B of A up to their usual shenanigans. We fired them about a year ago, after they raised the safety deposit box fees by 45%. Went to a local bank, and are much more satisfied.

  5. This was a great article. Very well written. B of A is too big for its own good. It needs to be totally scrapped and rebuilt without all of the current management. It seems rife with corruption but the fact is that something like 1 in 4 Americans have some kind of am account with them through all of the acquisitions that they have made. B of A leaves a nasty taste in my mouth every time I think of going to them.

  6. More shady practices by BofA. Shame! The big banks are actually larger than they were before the crisis.

  7. Great article. I knew big banks were up to no good, but to see all the gory details, it’s kind of sickening. However, thanks for the knowledge. Knowledge is power. :)

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