Wachovia Bank N.A. agreed on Thursday to pay $148 million to settle criminal charges and civil claims for conspiring to overcharge state and local governments on investments, according to Securities and Exchange Commission officials.

The SEC alleges that Wachovia generated millions of dollars in illicit gains during an eight-year period by fraudulently rigging at least 58 municipal bond reinvestment transactions in 25 states and Puerto Rico.

Wachovia Bank is now Wells Fargo Bank following a merger in March 2010.

According to the SEC's complaint filed in U.S. District Court for the District of New Jersey, Wachovia engaged in fraudulent bidding of guaranteed investment contracts (GICs), repurchase agreements (repos) and forward-purchase agreements (FPAs) from at least 1997 to 2005.

The SEC says that Wachovia's fraudulent practices and misrepresentations not only undermined the competitive bidding process, but reduced the value of the reinvestment products that municipalities paid for.

Additionally, the SEC claims that Wachovia deliberately failed to tell certain municipalities whether the reinvestment instruments had been purchased at fair market value; that jeopardized the tax-exempt status of billions of dollars in municipal securities because the supposed competitive bidding process that establishes the fair market value of the investment was corrupted.

The SEC alleges that Wachovia won some bids through a practice known as "last looks" in which it obtained information from the bidding agents about competing bids. The SEC alleges that the bank also won bids through "set-ups" in which the bidding agent deliberately obtained non-winning bids from other providers in order to rig the field in Wachovia's favor. Wachovia facilitated some bids rigged for others to win by deliberately submitting non-winning bids.

Wachovia agreed to settle the charges by paying $46 million to the SEC that will be returned to affected municipalities or conduit borrowers. Wachovia also entered into agreements with the Justice Department, the Office of the Comptroller of the Currency, the Internal Revenue Service and 26 state attorneys general that will force the bank to pay an additional $102 million.

Without admitting or denying the allegations in the SEC's complaint, Wachovia has consented to the entry of a final judgment enjoining it from future violations of the Securities Act. Wachovia has also agreed to pay a penalty of $25 million and disgorgement of $13,802,984 with prejudgment interest of $7,275,607. The settlement is subject to court approval

The settlements arise out of long-standing parallel investigations into widespread corruption in the municipal securities reinvestment industry in which 18 individuals have been criminally charged by the Justice Department's Antitrust Division.

"Wachovia won bids by playing an elaborate game of 'you scratch my back and I'll scratch yours,' rather than engaging in legitimate competition to win municipalities' business," said Robert Khuzami, director of the SEC's Division of Enforcement.

Added Elaine C. Greenberg, chief of the SEC's Municipal Securities and Public Pensions Unit: "Wachovia hid its fraudulent practices from municipalities by affirmatively assuring them that they had not engaged in any manipulative conduct. This settlement will result in significant payments to municipalities harmed by Wachovia's unlawful actions.

The SEC's investigation is continuing, officials said.

Financial institutions have now paid a total of $673 million in settlements resulting from the ongoing investigations into corruption in the municipal reinvestment industry. Others charged before Wachovia are:

* J.P. Morgan Securities LLC, which reached a $228 million settlement with the SEC and other federal and state authorities on July 7, 2011.

* UBS Financial Services Inc., which reached a $160 million settlement with the SEC and other federal and state authorities on May 4, 2011.

* Banc of America Securities LLC - which reached a $137 million settlement with the SEC and other federal and state authorities on December 7, 2010.

--Jim McConville