Risk & Compliance

Banks Settle Bond Price-Fixing Claims for $337M

“The brazen attitude exhibited by Wall Street traders toward public institutional buyers of GSE bonds was shocking,” the lead plaintiff says.
Matthew HellerDecember 17, 2019

Institutional investors have won the last in a series of settlements against banks accused of rigging the $550 billion market for bonds backed by Fannie Mae and Freddie Mac.

Under a preliminary agreement filed on Monday, 13 banks and financial services companies will pay $337 million to settle the investors’ antitrust allegations, with Barclays, which underwrote the most Fannie Mae and Freddie Mac bonds, contributing $87 million.

The other defendants — including Bank of America, Citigroup, HSBC, JPMorgan Chase, Morgan Stanley, and UBS — will separately pay a combined $250 million.

With Deutsche Bank, Goldman Sachs, and units of Tennessee’s First Horizon previously having settled for a combined $49.5 million, the latest agreement brings the total payout to $386.5 million.

Investors including Pennsylvania Treasurer Joe Torsella had accused the banks in a class action filed in March 2019 of exploiting their market dominance to overcharge for Fannie Mae and Freddie Mac, or government-sponsored entity (GSE), bonds from Jan. 1, 2009 to Jan. 1, 2019, and keep more profit for themselves.

Torsella’s office noted that many municipalities are limited by law to investing only in GSEs or federally-backed bonds. “Price manipulation of any kind in this market harms these entities and steals taxpayer dollars,” it said in a news release.

Investors cited online chatroom messages in which traders representing the defendant banks agreed on artificial prices before bringing the bonds to market.

“The evidence in this case was particularly damning,” Torsella said. “The brazen attitude exhibited by Wall Street traders toward public institutional buyers of GSE bonds was shocking.”

The 16 defendants underwrote $3.97 trillion, or 77.2%, of Fannie Mae and Freddie Mac bonds from Jan. 1, 2009, to Jan. 1, 2016. The settlements also require them to establish and maintain an effective antitrust compliance program.

“My focus in this case has been and remains reforming the government-sponsored entity bond market … so that this conduct is not only corrected, but that it is prevented,” Torsella said.

Fannie Mae and Freddie Mac have been in conservatorships established by the Federal Housing Finance Agency since taxpayers bailed them out in September 2008.

Photo by Chip Somodevilla/Getty Images