Yield burning

Yield burning is a form of financial fraud involving the United States municipal bond market.

Yield burning was a method by which major Wall Street U.S. municipal bond dealers cheated the United States government out of millions of dollars of revenue. The scam was initially exposed by whistleblower Michael Lissack in 1994, and eventually the firms involved settled with the government for $205 million.

The New York Times described the scam as follows:

Lissack's initial whistleblowing and cases did not seem to stop the practice. Yield burning can take multiple forms including the over pricing of securities and providing under market yields on reinvestment contracts. In 2004, the United States Court of Appeals for the Second Circuit described the following:

By 2005, federal regulators became concerned that the yield burning scandal was having a redux. Some of the concern stemmed from a ruling in Lissack's qui tam case, which held yield burning to be a tax issue and thus exempt from the provisions of the federal False Claims Act. Yield burning was, however, directly covered by the Internal Revenue Code tax whistleblower provisions that took effect in 2007. Several major firms ultimately reached a settlement with the Securities and Exchange Commission and Internal Revenue Service regarding a replay of the bid rigging practices that had been originally exposed by Lissack's qui tam suit (the basis of the 2nd District Court language above). More lawsuits and investigations continue to the present day. In July 2011, JPMorgan Chase became the third major institution (after Bank of America and UBS) to settle with regulators bring the total recovered in the present round of activity to nearly $500 million.

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