Bank of America Unit, Others, Accused of Illegal Manipulation of Treasury Auctions
FOREX, LIBOR and now U.S. Treasury auctions. Some of the nation’s biggest banks have been accused of all sorts of market manipulations. A lawsuit filed this month suggests that the banking industry still hasn’t learned its lesson.
The Boston Retirement System – the public pension fund for state and Boston municipal employees – filed suit this month against the “Who’s Who” of American banks. Big Wall Street firms such as Bank of America’s Merrill Lynch, Citigroup and JPMorgan Chase were among the twenty-two defendants named.
The pension fund accuses the financial giants of manipulating Treasury auctions, an action that hurts both investors and borrowers. Particularly affected are institutional investors such as pension funds who often purchase large amounts of Treasury securities.
The complaint claims the banks used chat rooms and instant messaging to illegally coordinate trading strategies. This allowed the banks to inflate the price of Treasuries they sold to customers in the pre-auction market and later deflate prices when they purchased securities to cover their pre-auction sales.
The lawsuit comes on the heels of reports last month that the Justice Department was investigating similar reports of market manipulation.
The lawsuit seeks class action status on behalf of all investors and covers the time period of 2007 through 2012. The Wall Street Journal reported in 2011 that bank regulators were investigating Bank of America and Citigroup for possible LIBOR manipulation. LIBOR is the acronym for the London Interbank Offered Rate and is an important benchmark for many loans.
In February 2012 Reuters reported that the Justice Department was investigating the LIBOR manipulation. The media reports and investigations are believed to have curbed the manipulation of the Treasury auctions that year.
The news couldn’t come at a worse time for Bank of America. Many believe the bank, which has paid out tens of billions of dollars in legal fees and fines, had finally turned the corner. Notwithstanding renewed investor confidence, we see no change and expect more legal troubles for Bank of America and many of the “Too Big To Fail” banks.
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