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EDA gets settlement in derivatives fraud scheme

CHARLESTON, W.Va. -- The state Economic Development Authority has received a $358,000 check as part of a national settlement between the owners of Wachovia Bank and 26 state attorneys general to cover a national municipal bond bid-rigging scheme.

David Warner, executive director of the development authority, said the settlement covers a 2002 bond issuance to raise revenue for the Stonewall Jackson Lake State Park project.

Warner told members of the authority board Thursday that his office was contacted last year to inform them one of their bond issuances may have been affected during the course of an eight-year fraud scheme.

"There was some bid-rigging involved on the national level," Warner said. "We were notified that we had at least one bond issue that may have been negatively impacted by this activity."

According to the U.S. Securities and Exchange Commission, between 1997 and 2005 Wachovia generated millions of dollars in illicit gains by fraudulently rigging at least 58 municipal bond reinvestment transactions in 25 states and Puerto Rico.

According to regulators, these actions undermined the competitive bidding process but negatively affected the prices that municipalities paid for derivative products related to the bond sale.

Warner said the specific derivative dealing with the authority's case was a guaranteed investment contract, or GIC, associated with the Stonewall bond sale.

Wells Fargo acquired Wachovia for $15 billion in late 2008.

Warner said the money would go to the trustee in the Stonewall bond sale, United Bank. It will be up to the bank to determine how the proceeds from the settlement are distributed among bondholders.

The authority will keep $561 of the settlement money to reimburse legal expenses it incurred in the settlement process.

In other action Thursday, the development authority board approved a 10-year, $885,000 loan to Mining Repair Specialists, Inc. in Holden.

The Logan County company specializes in rebuilding and manufacturing components for various types of mining equipment. The company plans to use the loan to build a new 20,000-square-foot building, which will house $1.1 million worth of new equipment.  

The company expects the expansion will help it add nine jobs, raising its total employment from 28 to 37 over the next three years.

The authority also approved a 10-year, $77,727 loan for Philippi-based Blackheart International.

Blackheart was founded in 1999 by a group of former U.S. Special Forces soldiers. The company provides equipment, logistics and training solutions to federal agencies, private security contractors, and local law enforcement agencies.

The loan will be used to help the company buy a specialized metal-cutting machine that will help expand its ability to manufacture tactical gear and accessories.

Contact writer Jared Hunt at or 304-348-4836.


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