Ex-Piper exec target of federal probe

The two-year inquiry is aimed at alleged collusion in the market for municipal bonds.

March 1, 2008 at 3:22AM

A former Piper Jaffray executive, as well as other investment bankers around the country, are targets of a two-year federal investigation of collusion in the municipal bond market.

Minneapolis-based Piper Jaffray disclosed Thursday that it has received demands for information from the Securities and Exchange Commission (SEC) and the antitrust division of the U.S. Department of Justice in connection with an industrywide investigation of anticompetitive practices involving the sales of investment contracts and securities that local governments buy using the proceeds of bond sales.

In December, James H. Towne, who was managing director of Piper Jaffray's municipal derivative products, left the company, according to Financial Industry Regulatory Authority records. Towne could not be reached for comment Friday, and Piper Jaffray would not say why he left the company.

In a short statement buried in a routine federal filing Thursday, Piper Jaffray said that it fired an employee in December after the Justice Department notified the worker that he was a target of the investigation.

"We take this matter seriously and are cooperating" with the SEC and Justice Department, a Piper spokesman said Friday.

Goldman Sachs Group and Bear Stearns bankers also are under investigation, as well as employees at North Carolina-based Wachovia, the nation's fourth-largest bank, Bloomberg News reported Friday. Federal authorities have been searching since 2006 for evidence of rigged bids and other misconduct by banks that sell investments and derivatives -- such as interest-rate swaps -- tied to municipal bonds.

Bank of America and Financial Security Assurance Holdings said in regulatory filings that they may be sued by the SEC.

"This is the beginning of the end of this investigation," Christopher Taylor, a past executive director of the Municipal Securities Rulemaking board, told Bloomberg. "I'm afraid this is going to add a further taint to a market that otherwise was considered to be very safe, very stable -- maybe even boring."

Municipalities sell bonds to finance construction and repairs of roads, bridges, sewerage, schools, court houses and other big-ticket items.

Derivatives, financial contracts whose values are based on other securities or indexes, are used by local governments to guard against swings in borrowing costs or to lock in current interest rates for bond sales they might make in future years.

Investigators are also looking into the bidding practices on guaranteed investment contracts, into which governments place money raised from bond sales until it is needed for projects, according to Bloomberg.

Neal St. Anthony • 612-673-7144

about the writer

about the writer

Neal St. Anthony

Columnist, reporter

Neal St. Anthony has been a Star Tribune business columnist/reporter since 1984. 

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