The Justice Department is investigating whether several large mutual funds that boycotted a bond sale by Illinois earlier this year broke antitrust laws.
A Justice Department spokesman said the agency is looking "at the possibility of collusive practices" involving tax-exempt bonds but didn't identify the companies under review.At least one large mutual fund confirmed this week that it is cooperating with federal investigators.
Some mutual funds became upset after Illinois announced plans in January to repeal a tax credit they said might reduce the value of or send into default some $480 million of bonds to build waste incinerator plants.
Major mutual funds then threatened to boycott future bonds sales by the state. Lack of major institutional buyers, including mutual funds, forced Illinois to scrap $52 million sale of municipal bonds in January.
Gov. Jim Edgar signed the repeal order last month.
Brian Mattes, spokesman for the The Vanguard Group Inc. in Valley Forge, Pa., said the large mutual-fund company received a civil investigative demand about a month ago from the Justice Department's antitrust division about the Illinois matter. The notices, known as CIDs, are the civil equivalent of a subpoena and are used to gather documents and testimony in investigations.
"Vanguard has cooperated fully with the U.S. Justice Department's investigation of issues relating to the trading of certain Illinois debt securities," Mattes said in a statement. "Our internal review indicated that our funds conducted their activities in a proper manner at all times."
He declined further comment due to the pending investigation. The Wall Street Journal reported Thursday other major funds received similar notices, including Boston-based Fidelity Investments. A Fidelity spokeswoman declined comment.
Gov. Edgar's aides met with more than a dozen mutual fund managers in January who had sunk millions into the incinerator bonds. At that time, New York investment banker David Kagan, who consulted on two of the three Illinois incinerator projects, said bonds funds "are going to shy away from Illinois" if the tax credit repeal affects existing projects.
Officials in three communities - the Chicago suburbs of Ford Heights and Robbins, and Fulton in northwestern Illinois - independently issued $480 million in bonds for incinerator projects.
In March, Edgar repealed part of the Retail Rate Law that requires utilities to buy energy from companies using renewable sources - such as incinerated solid waste - in return for a tax credit.