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Firms To Pay $386 Million To Settle Price-Fixing Allegations

Pennsylvania Treasurer Joe Torsella speaks next to Gov. Tom Wolf.

Thirteen large financial firms are agreeing to pay $337 million to settle claims by Pennsylvania's treasury department and about a dozen other government agencies and pension funds accusing them of inflating the price of bonds issued by Fannie Mae and Freddie Mac, according to proposed agreements filed in federal court.

If approved, the agreements filed late Monday would bring to $386 million the amount to be paid by 16 financial firms that Pennsylvania Treasurer Joe Torsella, the lead plaintiff, and officials in other states accused of price fixing in the secondary market for bonds issued by government-controlled companies, called GSE bonds.

Pennsylvania's lawsuit consolidated claims by various government agencies and labor unions, including the city of Baltimore and pension systems in St. Louis, Oklahoma, Puerto Rico and Birmingham, Alabama.

The bonds are a cornerstone for the investment portfolios of government and institutional investors, and Torsella's office said a large number of them likely were victims of the conspiracy. It estimated their losses at around $850 million. Those investors will be able to apply to recoup money from the settlement.

The case was aided by evidence from a "cooperating co-conspirator" in a U.S. Department of Justice antitrust investigation, identified in court filings as Deutsche Bank, and filings included brief transcripts of what were said to be online “chats” by traders at firms agreeing to fix bond prices.

“The evidence in this case was particularly damning,” Torsella said in a statement. “The brazen attitude exhibited by Wall Street traders toward public institutional buyers of GSE bonds was shocking.”

In the discussions, the traders appeared to agree to fix bond prices at artificially inflated prices, cheating buyers of the bonds. The price-fixing began in 2009 and lasted through 2015, and violated federal anti-trust law, court filings said.

In one online chat from 2012, a Deutsche Bank trader asked: “where are we going out on these bonds? 99.90? just want to make sure everyone’s cool w/ that … .” A Cantor Fitzgerald trader responds: “Yes, 99.90,” and a BNP Paribas trader says: “99.90 on everything.”

Under one settlement filed Monday night in federal court in New York, Barclays would agree to pay $87 million. Under a second agreement filed simultaneously, $250 million total would be paid by 12 other banks: BNP Paribas, Cantor Fitzgerald, Citigroup, Credit Suisse, HSBC, JP Morgan, Merrill Lynch, Pierce, Fenner & Smith, Morgan Stanley, Nomura, Societe Generale, TD Securities and UBS.

The court gave preliminary approval in October to a settlement with Goldman Sachs and First Tennessee Bank and last week to a settlement with Deutsche Bank.

Combined, those firms controlled about 77% of the market for GSE bonds, according to filings in the case. Barclays was the largest, with 14%.

As part of the settlement, the defendant firms must create an antitrust compliance program that can be scrutinized for two years by a court-appointed representative.

(Photo credit: Gov. Tom Wolf/Flickr)