In a season of bad financial news for many schools, a handful learned this week that they will be getting unforeseen checks -- because they got ripped off by big banks years ago.
The money is coming from state and national settlements of bid-rigging cases against banking giants that are accused of conspiring with each other, and with outside financial professionals, to inflate the fees they charged to governments and nonprofits or to minimize the interest paid to those entities.
Pine-Richland School District, for instance, is getting $252,053 as part of a settlement ending a civil case by the federal Office of the Comptroller of the Currency against JPMorgan Chase Bank.
"Of course, any revenue coming our way is absolutely welcome," said Dana Siford, business manager for Pine-Richland. "We will likely apply this to our current construction project for high school renovation," enabling the district to borrow a little bit less.
JPMorgan agreed last week to pay $228 million, in total, to the comptroller, the Securities and Exchange Commission and a group of state attorneys general. The JPMorgan settlement follows similar pacts in December with a former subsidiary of Bank of America and in May with Union Bank of Switzerland.
The SEC's complaint against JPMorgan said the firm manipulated municipalities into hiring financial agents that then provided JPMorgan with inside information that it used to barely undercut competitors' bids.
In some cases, the SEC alleged, JPMorgan put together lists of qualified bidders for municipal financial work but secured promises from all of the other competitors that they would intentionally submit losing bids, thereby tossing the work to JPMorgan.
In other cases, JPMorgan honored secret pledges to other institutions to purposely submit bad bids so the others could win.
Much of the dirty work happened in obscure corners of the complex bond deals by which governments finance building projects. When municipalities float bonds, they often invest the money until they are ready to spend it. By conspiring to give them artificially low yields on those investments, banks bolstered their profits by hundreds of thousands of dollars.
Pine-Richland, for instance, appears to have gotten a substandard interest rate on a certificate of deposit it bought from Chase Bank, later bought by JPMorgan.
"The central core of this whole scheme was the banks conspiring to lower the interest they were paying [to governments], or to increase the fees they were getting," said Nils Frederiksen, spokesman for Attorney General Linda L. Kelly, whose office joined the state-federal actions against the banks while it was run by Gov. Tom Corbett.
Many municipalities believed they were paying financial consultants to run competitive processes and get taxpayers the best results possible, Mr. Frederiksen said. "What the victims weren't privy to is that banks and brokers were working behind the scenes to determine who was going to get the deal, and what the rates were going to be and what the fees were going to be."
He said states are sorting out which governments were victimized by Bank of America, UBS and JPMorgan, and how much they are due to get.
The SEC and comptroller have released lists of governments getting money from their settlements, and, locally, the winners are primarily school districts.
Shaler Area School District is due $78,507 as a result of a 2001 debt deal on which JPMorgan was a consultant.
"It's a pleasant surprise," said Shaler Area business director Charles Bennett, after learning of the settlement. He said the district would find out if there are restrictions on how it can use the money -- and whether it must be shared with the state -- but, if not, may use it to cover debt payments.
Ambridge Area is due $203,053, North Hills $201,276, Mars Area $269,911 and Kiski Area $383,678, all for deals done in 2002.
Kiski Area superintendent John Meighan said his district was borrowing more than $30 million in 2002 for a high school renovation project.
"Obviously, this is welcome news in light of the current state of public education fiscal shortfalls in Pennsylvania," he said. State education funding has been cut in the just-approved budget.
The Allegheny County Airport Authority stands to get $325,956 from the settlement with UBS and $98,402 from the Bank of America settlement, both amounts stemming from a $114.5 million borrowing in 2002.
The Bank of America settlement also entitles Carnegie to $121,744, Pine-Richland to $291,062, Norwin schools to $198,147 and Sto-Rox schools to $608,883 -- all in relation to 2001 financial deals.
It's unclear how much big borrowers Allegheny County, the City of Pittsburgh and the Pittsburgh Water and Sewer Authority are due under the settlements. All have borrowed money through JPMorgan. The county hasn't yet been invited to submit a claim.
Mr. Frederiksen said claim forms are still going out to governments that might have been victimized. He noted that the settlement with JPMorgan covers transactions through late 2005. There may be shoes yet to drop.
"Not only is this an ongoing civil investigation by the states," he said, "but it's an ongoing criminal investigation by the U.S. Department of Justice."
Rich Lord: firstname.lastname@example.org or 412-263-1542.