A former Bank of America Corp. executive has been indicted for his role in a widespread bid-rigging scheme that played out at the Charlotte bank and other major lenders, the U.S. Department of Justice announced Friday.
The indictment filed in federal court in Charlotte charges Phillip D. Murphy with participating in a wire-fraud scheme and separate fraud conspiracies from as early as 1998 through 2006. The scheme involved the bidding for contracts that state and local governments use to invest municipal bond proceeds.
Murphy, who could not be reached for comment, worked in Bank of Americas securities unit and had been under investigation for suspected bid rigging for years, according to records from the Financial Industry Regulatory Authority.
The website of a California-based advisory firm where he worked most recently said Murphy served as a managing director in Bank of Americas tax-exempt derivatives group. The site describes him as one of the pioneers of the municipal derivative and investment agreement business, having developed or improved many of the structures being used in the market today.
Bank of America spokesman Bill Halldin declined to comment. A principal at the advisory firm, Winters & Co. Advisors, said Murphy has not worked there since May.
The charges filed Thursday are related to a wide-ranging government investigation of the U.S. municipal bond market. In December 2010, four federal agencies and 20 states announced a sweeping $137 million settlement with Bank of America for its role in a scam authorities said defrauded state agencies, cities and nonprofits that sought to invest with banks the millions they borrowed through bond offerings for hospitals, apartment complexes and other projects.
That settlement, which included $3.4 million for North Carolina, resulted from a 2007 leniency agreement the bank reached with the Justice Department, sparing it from criminal prosecution. Bank of America, which officials then said was the first and only company to self-report its activities in the case, paid restitution but no fines after it approached the Justice Department, prompting the investigation.
Other banks also have reached settlements over bid-rigging allegations. Wells Fargo & Co. last year announced it would pay $148 million to resolve accusations that Charlottes Wachovia, which the bank bought in 2008, participated in the scheme. JPMorgan Chase & Co. settled similar charges last year for $228 million.
The three-count indictment filed against Murphy alleges that he conspired with a California broker known as CDR Financial Products to fraudulently increase the number and profitability of investment agreements and other contracts awarded to his company, which was not named in the filing.
Murphy and his co-conspirators misrepresented that the bidding process complied with U.S. Treasury regulations, and Murphy sometimes arranged kickbacks for the broker and others involved in the scheme, authorities said.
As a result of the bid manipulation, banks won investment agreements and other municipal finance contracts at artificially determined prices, costing municipal issuers, the Justice Department said.
The indictment also charges that Murphy conspired with others to falsify bank records so his co-conspirators could pay the kickbacks to CDR and others.
Yesterdays charges outline a fraudulent scheme to subvert competition in the marketplace, said Janice Fedarcyk of the FBI, which assisted the Justice Departments Antitrust Division, in a news release Friday. Those who engage in this type of criminal activity not only stand to defraud public entities, but erode the publics trust in the competitive bidding process.
Murphy is charged with two counts of conspiracy and one count of wire fraud. He faces a maximum sentence of 30 years for the wire fraud charge and five years each for the fraud and false bank records conspiracy charges.
Murphy also could face fines of more than $1.5 million.
To date, one company and 13 people, including former Bank of America employees Douglas Campbell and Brian Zwerner, have pleaded guilty to charges stemming from the probe, which is continuing.