AIG, Bank of America and JPMorgan Chase have all become enmeshed in a Department of Justice Antitrust investigation into bid-rigging relating to municipal bond proceeds. While these three firms would be the big names, more than two dozen banks, insurers and brokers have either received subpoenas or been raided by federal authorities in the probe. At issue is whether laws we broken in the process of arranging bids for guaranteed investment contracts. Marketwatch describes it thusly:

GICs guarantee institutions a certain rate of return on specific amounts of money. Providers promise to pay an agreed rate and get the money to invest in return. Profits are made on the spread between the rate the provider offers the buyer and the returns it can generate itself.

Municipalities often use GICs when they get large sums of money from a recent bond offering, but don't want to spend the cash straight away. Municipalities often ask brokers to help them track down the most attractive GICs.

"The investigations appear to be centered on broker activities in the municipal GIC market," said Thomas Abruzzo, managing director at rating agency Fitch and senior credit analyst for financial guaranty companies. "We don't anticipate that this will create problems for GIC providers, but that depends what things might be uncovered. It's an ongoing investigation and the story only started snowballing this week."

Other firms tagged in the investigation include: CDR Financial Products, Investment Management Advisory Group Inc. Sound Capital Management Inc., IXIS Corporate & Investment Bank, First Southwest Co., Genworth Financial Inc., XL Capital Ltd., Financial Security Assurance Corp, FGIC Corp. and former parent company, General Electric Co. have all either been paid a visit received a love letter from the DOJ.

-- MDT

Labels: AIG, Department of Justice