Ex-Bank of America trader avoids prison in muni bond case

Reuters

By Nate Raymond

NEW YORK, July 25 (Reuters) - A former Bank of America Corp derivatives trader who pleaded guilty to conspiring to falsify documents was spared prison on Friday after spending years helping the government probe bid-rigging in the $3.7 trillion municipal bond market.

Brian Zwerner, a former manager of Bank of America's municipal derivatives desk, was sentenced to spend three years on probation and pay a $10,000 fine by U.S. District Judge Victor Marrero in New York.

Zwerner had pleaded guilty in 2011 to conspiring to make false entries in reports and other papers sent from his desk to bank management.

According to court papers he has also agreed to pay Bank of America $890,000 and settle related U.S. Securities and Exchange Commission (SEC) civil charges.

"I deeply regret my actions," the Atlanta resident told Marrero.

The government's antitrust investigation has resulted in numerous convictions and $743 million in settlements with Bank of America, UBS AG, General Electric Co, JPMorgan Chase & Co and Wells Fargo & Co.

Zwerner's lawyer said her client's cooperation also helped the SEC understand complex mortgage products at the heart of the financial crisis.

"He was their big break in the Abacus case and their case against Wachovia," the lawyer, Katya Jestin, said in court.

Wells Fargo paid $11 million in 2011 to resolve SEC claims over collateralized debt obligations sold by Wachovia Corp, which it bought at the end of 2008. Zwerner had begun working there in 2005.

Goldman Sachs Group Inc, meanwhile, agreed in 2010 to pay $550 million to settle claims it misled investors in a CDO tied to subprime mortgages called Abacus 2007-AC1.

Jestin declined to comment after the hearing. SEC representatives did not immediately respond to requests for comment.

The Justice Department said from 1999 to 2002, Zwerner conspired to falsify bank records related to marketing profits, so Bank of America could pay kickbacks to brokers including Beverly Hills, California-based CDR Financial Products Inc.

Prosecutors said these kickbacks enabled the bank to pay brokers to manipulate bidding for investment agreements or other municipal finance contracts, and win certain bids.

Bank of America, which reported the misconduct after uncovering it, reached a $137.3 million settlement with federal and state authorities in 2010, and agreed to pay $20 million to resolve a related class action in 2013.

Phillip Murphy, a former managing director of Bank of America's municipal derivatives desk, is the last defendant convicted in the municipal bond probe to still await sentencing. Zwerner had been expected to testify against him.

The case is U.S. v. Zwerner, U.S. District Court, Southern District of New York, No. 11-cr-00293.

(Reporting by Nate Raymond in New York; Editing by Tom Brown)

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