Penn­syl­va­nia ac­cuses a dozen firms of bond price-fix­ing

Centre Daily Times - - Front Page - BY MARC LEVY

Penn­syl­va­nia’s trea­sury depart­ment is ac­cus­ing about a dozen large fi­nan­cial firms of work­ing to­gether to il­le­gally in­flate the price of bonds is­sued by Fan­nie Mae and Fred­die Mac over seven years.

A fed­eral court fil­ing by Penn­syl­va­nia Trea­surer Joe Torsella cites what his of­fice says is ev­i­dence from a “co­op­er­at­ing co-con­spir­a­tor” in a U.S. Depart­ment of Jus­tice in­ves­ti­ga­tion into price­fix­ing in the sec­ondary mar­ket for bonds is­sued by gov­ern­ment­con­trolled com­pa­nies.

Ev­i­dence cited in the fil­ing late Thurs­day in­cludes brief tran­scripts of what it says are elec­tronic chats be­tween traders from var­i­ous fi­nan­cial in­sti­tu­tions that are the largest deal­ers of the bonds.

In the dis­cus­sions, the traders al­legedly agree to fix bond prices at ar­ti­fi­cially in­flated prices, cheat­ing Penn­syl­va­nia and other buy­ers of the bonds. The price­fix­ing be­gan in 2009 and lasted through 2015, and vi­o­lates fed­eral anti-trust law, Torsella’s fil­ing said.

In one 2012 ex­change in Torsella’s fil­ing, a Mor­gan Stan­ley trader says, “I just don’t want to cre­ate a race to the bot­tom be­tween the 3 of us, doesn’t help any­one.”

That trader and traders from Deutsche Bank and BNP Paribas then agree on a price.

One trader pro­poses a price of $99.985, an­other agrees and the third re­sponds, “Good by me.”

An anal­y­sis shows that pric­ing pat­terns are con­sis­tent with such a price­fix­ing agree­ment, the fil­ing said. The “eco­nomic fin­ger­prints” of the con­spir­acy di­min­ished af­ter Jan­uary 2016, when the co­op­er­at­ing co-con­spir­a­tor dis­cov­ered it, it said.

Torsella’s of­fice said it is bound by a con­fi­den­tial­ity agree­ment and could not re­veal how it came to re­ceive in­for­ma­tion from the co­op­er­at­ing co-con­spir­a­tor. It would not say who the con­fi­den­tial­ity agree­ment is with.

Named as de­fen­dants are Bar­clays, Bank of Amer­ica, Cit­i­group, Credit Suisse, Gold­man Sachs, BNP Paribas, First Ten­nessee Bank, TD Se­cu­ri­ties, Mor­gan Stan­ley, No­mura, JP Mor­gan, Can­tor Fitzger­ald, UBS and HSBC.

Most firms de­clined to com­ment, while other fi­nan­cial in­sti­tu­tions con­tacted by The As­so­ci­ated Press did not im­me­di­ately re­spond Fri­day. Some asked for a copy of the law­suit.

Jus­tice Depart­ment spokesman Jeremy Ed­wards de­clined com­ment Fri­day.

The bonds are a corner­stone for the in­vest­ment port­fo­lios of gov­ern­ment and in­sti­tu­tional in­vestors, and Torsella’s of­fice said it ex­pects that a large num­ber of gov­ern­ments, pub­lic agen­cies, pen­sion funds and other pub­lic in­sti­tu­tional in­vestors are vic­tims of the al­leged con­spir­acy.

Thurs­day’s fil­ing is part of an on­go­ing case in fed­eral court in New York’s south­ern dis­trict be­ing led by Torsella’s of­fice.

Penn­syl­va­nia is seek­ing class ac­tion in the case, which has con­sol­i­dated law­suits by var­i­ous gov­ern­ment en­ti­ties, la­bor unions and pub­lic pen­sion sys­tems, in­clud­ing the city of Bal­ti­more.

It said Penn­syl­va­nia’s var­i­ous state agen­cies bought or sold $63 bil­lion in so-called GSE bonds dur­ing the seven-year pe­riod. Torsella’s of­fice is in the process of de­ter­min­ing how much money state agen­cies lost be­cause of the al­leged price-fix­ing scheme, of­fi­cials there said.

The Depart­ment of Jus­tice hasn’t filed any crim­i­nal charges and the co­op­er­at­ing co-con­spir­a­tor is not di­rectly iden­ti­fied in Torsella’s court fil­ing.

How­ever, Torsella’s fil­ing iden­ti­fies Deutsche Bank as a co-con­spir­a­tor and one of var­i­ous en­ti­ties that par­tic­i­pated in the vi­o­la­tions, but that are not named as de­fen­dants. A Deutsche Bank spokesman de­clined com­ment Fri­day.

Trea­surer Joe Torsella

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