Four more companies confirmed on Friday they received subpoenas from the antitrust division of the US Justice Department and the US Securities and Exchange Commission in a probe of bid rigging for deals to invest municipal bond proceeds.
A source familiar with the probe said subpoenas have been served to as many as 30 firms in the criminal investigation that has rocked the normally quiet $2 trillion municipal bond industry.
The Justice Department is seeking evidences, were awarded. School districts and local governments typically buy GICs from banks or insurance companies to park proceeds of tax-exempt bond issues before the funds are spent on public projects.
The four companies that on Friday said they received subpoenas are American International Group Inc, IXIS Corporate & Investment Bank, First Southwest Co, and Genworth Financial Inc.
Two subsidiaries of AIG, the world's largest insurer by market value, received subpoenas, company spokesman Joe Norton said. AIG Financial Products Corp received a Justice Department subpoena and another AIG subsidiary, SunAmerica, received a subpoena from the SEC. Norton declined to comment further. IXIS Financial Corp, a subsidiary of IXIS Corporate & Investment Bank, has received two subpoenas, spokeswoman Janine Shagoury said.
First Southwest, of Dallas, received four subpoenas for documents, Chairman and Chief Executive Hill Feinberg said. The Dallas-based firm is fully co-operating with the request, he said. Genworth said a business unit received both SEC and Justice Department subpoenas and would cooperate fully with the probe. Genworth said it has not issued and does not currently issue GICs, but said the business unit provides services to a third party that does.
The involvement of the Justice Department's Antitrust Division, which combats anti-competitive business behaviour, demonstrates the government's resolve to clean up certain practices in the municipal bond market, according to the source familiar with the probe.
The probe also could lead to criminal convictions. "Some folks may lose their ability to conduct business," the source said. Federal investigators have seized documents at CDR Financial Products, Investment Management Advisory Group Inc and Sound Capital Management Inc.
Two units of XL Capital Ltd- XL Capital Assurance Inc and XL Life and Annuity - as well as FGIC Corp and its former parent, General Electric Co, and Financial Security Assurance Corp disclosed earlier this week that they have received subpoenas.
XL Capital Assurance Inc, Financial Security Assurance Corp and FGIC also guarantee the repayment of interest and principal if a municipal bond insurer defaults. They have "triple-A" insurance strength ratings. Moody's Investors Service and Fitch Ratings said all of the ratings remain "stable." Both agencies said they will monitor any developments.
"Based on the apparent focus of the investigation being centered on municipal GIC brokers at this time, Fitch does not envision any impact to the outstanding ratings," the rating agency said on Friday in a statement. A change in the rating could pressure the prices of the municipal bonds insured by these companies.
Moody's said a subpoena does not indicate wrongdoing by the recipient, but in some cases it is a means by which illegal actions or serious failures of corporate governance or control are uncovered.
Another source familiar with the probe previously said it was likely to widen further to include banks and investment firms that won deals with bids determined to be illegal. On Friday, representatives of Citigroup Inc and J.P. Morgan Chase & Co declined to comment on subpoenas. Bank of America Corp has previously said it could comment.
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