State Finances Rigged In Conspiracy by Banks in the $2.8 Trillion Muni Bond Market

West Virginia was just one stop in a nationwide conspiracy in which financial advisers to municipalities colluded with Bank of America (BAC), Citigroup Inc.(C), JPMorgan Chase & Co. (JPM), Lehman Brothers Holdings (LEHMQ), Wachovia Corp. and 11 other banks, Bloomberg News reports today.

They rigged bids on auctions for so-called guaranteed investment contracts, known as GICs, according to a Justice Department list that was filed in U.S. District Court in Manhattan on March 24 and then put under seal. Those contracts hold tens of billions of taxpayer dollars.

The workings of the conspiracy — which stretched from California to Pennsylvania in the $2.8 trillion municipal bond market and included more than 200 deals involving about 160 state agencies, local governments and non- profits — can be pieced together from the Justice Department’s indictment of CDR Financial Products Inc., civil lawsuits by governments around the country, e-mails obtained by Bloomberg News and interviews with current and former bankers and public officials.

“The whole investment process was rigged across the board,” said Charlie Anderson, who retired in 2007 as head of field operations for the Internal Revenue Service’s tax-exempt bond division. “It was so commonplace that people talked about it on the phones of their employers and ignored the fact that they were being recorded.

Anderson said he referred scores of cases to the Justice Department when he was with the IRS. He estimates that bid rigging cost taxpayers billions of dollars. Anderson said prosecutors are lining up conspirators to plead guilty and name names.”

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