Banking giants accused of fixing Fannie, Freddie bond prices

by Ryan Smith26 Mar 2019

A new lawsuit accuses some of the world’s largest financial institutions of conspiring to fix the prices of bonds issued by Fannie Mae and Freddie Mac.

The lawsuit, filed in federal court by the Pennsylvania Treasury, alleges that 16 financial giants – including Bank of America, Deutsche Bank, Citigroup, JPMorgan Chase and Barclays Bank – exploited their dominant position by conspiring to increase the GSEs’ bond prices by overcharging or underpaying investors in Fannie Mae and Freddie Mac bond transactions. As the largest underwriters of Fannie and Freddie bonds, the financial giants were in a position to exploit their clout, according to Pennsylvania Treasurer Joe Torsella.

“Time and time again, we have witnessed Wall Street institutions enrich themselves at the expense of Main Street investors with little to no consequence,” Torsella said. “When I believe that Pennsylvania taxpayers have been taken advantage of, I intend to stand up and fight, and recover for Pennsylvanians what is rightfully theirs. It’s long past time that the big Wall Street institutions remember that the rules apply to them and that breaking them has consequences.”

Government-sponsored securities like Fannie and Freddie bonds serve as foundational investments for many public agencies seeking safe investments for public funds. According to Torsella’s office, an initial analysis showed that four state treasury funds have lost millions as a result of the alleged price manipulation.