A settlement fund that's earmarked for victims of muni investment bid-rigging - allegedly committed by JP Morgan, UBS and Bank of America - has hit a snag in making payments because private lawyers are fighting for bigger payouts.

The three firms agreed in the past eight months to pay more than $500mn into a "victims fund" to settle government charges that they underpaid hundreds of cities, hospitals, schools and other municipal entities.  Federal authorities claim the banks conspired with brokers to pay municipalities less than the contracts were worth - by making artificially-low bids, and by taking turns to win the contracts.

SEC, Justice Dept, IRS, State Attorneys General.  The settlement was a major win for regulators and prosecutors, at a time when the government is struggling to show the public it can hold Wall Street accountable for unscrupulous practices.  However, delays in finalizing the settlements have left affected municipalities without the cash and, in some cases, without even a final figure for the settlement offer, which drags down the potential appeals process. 

While municipalities need to know the final figures in order to decide whether or not to accept the settlements, federal authorities have held up disbursements because private lawyers are complaining about the language of the settlement.  They say it doesn't make clear the fact that plaintiffs can opt out and pursue litigation on their own.  The private attorneys also argue that plaintiffs would earn far larger settlements if they were to reject the government-coordinated settlements and strike out individually.

Wonder who's earning the interest on the funds?   [WSJournal, 8/4/11]