Former Bank of America Executive Pleads Guilty to Role in Conspiracy and Fraud Involving Investment Contracts for Municipal Bonds Proceeds

A former Bank of America executive has plead guilty to his participation in a conspiracy and scheme to defraud related to bidding for contracts for the investment of municipal bond proceeds and other municipal finance contracts. Phillip D. Murphy, the former managing director of Bank of America’s municipal derivatives products desk from 1998 to 2002, pleaded guilty today before U.S. District Judge Max O. Cogburn, Jr. in the U.S. District Court for the Western District of North Carolina to participating in a fraud conspiracy and wire fraud scheme with employees of Rubin/Chambers, Dunhill Insurance Services Inc., also known as CDR Financial Products, a broker of municipal finance contracts, and others. Murphy also pleaded guilty to conspiring with others to make false entries in the reports and statements originating from his desk, which were sent to bank management. Murphy was indicted by a grand jury on July 19, 2012. According to the indictment, Murphy participated in a wire fraud scheme and separate fraud conspiracies that began as early as 1998 and continued until 2006. Public entities seek to invest money from a variety of sources, primarily the proceeds of municipal bonds that they issue, to raise money for, among other things, public projects. Public entities typically hire a broker to conduct a competitive bidding process for the award of the investment agreements and often for other municipal finance contracts. According to the charges, Murphy conspired with CDR and others to increase the number and profitability of investment agreements and other municipal finance contracts awarded to Bank of America. Murphy won investment agreements through CDR’s manipulation of the bidding process in obtaining losing bids from other providers, which is explicitly prohibited by U.S. Treasury regulations. As a result of the information, various providers won investment agreements and other municipal finance contracts at artificially determined prices. In exchange for this information, Murphy submitted intentionally losing bids for certain investment agreements and other contracts when requested and, on occasion, agreed to pay or arranged for kickbacks to be paid to CDR and other co-conspirator brokers. Murphy and his co-conspirators misrepresented to municipal issuers that the bidding process was competitive and in compliance with U.S. Treasury regulations. This caused the municipal issuers to award investment agreements and other municipal finance contracts to providers that otherwise would not have been awarded the contracts if the issuers had true and accurate information regarding the bidding process. Such conduct placed the tax-exempt status of the underlying bonds in jeopardy. Murphy pleaded guilty to two counts of conspiracy and one count of wire fraud. The fraud conspiracy carries a maximum penalty of five years in prison and a $250,000 fine. The wire fraud charge carries a maximum penalty of 30 years in prison and a $1 million fine. The false bank records conspiracy carries a maximum penalty of five years in prison and a $250,000 fine. The maximum fines for each of these offenses may be increased to twice the gain derived from the crime or twice the loss suffered by the victims of the crime, if either of those amounts is greater than the statutory maximum fine. Including Murphy, a total of 17 individuals have been convicted or pleaded guilty. Additionally, one company has pleaded guilty.