The culture of greed within the investment banking industry is legendary. Goldman Sachs may be the vortex of profit at the expense of public good, but Bank of America surely runs a close second.
Phillip D. Murphy, former head of Bank of America’s municipal derivatives desk, has been charged with conspiracy to defraud the U.S., wire fraud and conspiracy to make false bank records entries. This is according to an indictment filed yesterday in the U.S. District Court in Charlotte, North Carolina.
According to the Justice Department, the conspiracy was “far-reaching” and was “related to bidding for contracts for the investment of municipal bond proceeds and other municipal finance contracts.”
Murphy “allegedly participated in a complex fraud scheme and conspiracies to manipulate what was supposed to be a competitive process,” Scott D. Hammond, a deputy assistant attorney general in the Justice Department’s Antitrust Division, said in an e-mailed statement. “The division recently convicted at trial several individuals in this investigation, which is ongoing.”
The Justice Department writes:
The charged conspiracies and scheme to defraud relate to the provision of a type of contract, known as an investment agreement, to public entities, such as state, county, and local governments and agencies throughout the United States. Major financial institutions, including banks, investment banks, insurance companies, and financial services companies, are among the providers of investment agreements and other related municipal finance contracts.
Public entities seek to invest money from a variety of sources, primarily the proceeds of municipal bonds that they issue to raise money for, among other things, public projects. Public entities typically hire a broker to conduct a competitive bidding process among various providers for the award of an investment agreement to invest such money. Competitive bidding for these agreements is the subject of regulations issued by the U.S. Department of the Treasury and is related to the tax-exempt status of the bonds. The company that employed Murphy marketed financial products and services, including services as a provider of investment agreements…
“In a separate count, the indictment charges that Murphy conspired with others to falsify bank records related to marketing profits so that the co-conspirators could pay the kickbacks to CDR and others,” said the Justice Department.
“The efforts by Murphy and his co-conspirators to control and manipulate the bidding for investment contracts and the execution of a variety of certifications that covered up their scheme also obstructed the Internal Revenue Service’s (IRS) ability to monitor compliance with U.S. Treasury regulations and impeded the IRS’s ability to determine whether municipal issuers had correctly accounted for any money that was owed to the U.S. Treasury,” added the Justice Department.
According to Scott D. Hammond, Deputy Assistant Attorney General of the Antitrust Division’s Criminal Enforcement Program, “The division recently convicted at trial several individuals in this investigation, which is ongoing. We will continue to prosecute those who engage in such illegal and anticompetitive behavior.”
What’s so abhorrent here is not that Murphy and others attempted to government entities to enrich themselves, but that this sort of investment between banks and governments exists in the first place. It creates the perfect conditions for fraud and corruption.