WASHINGTON — State and local governments may soon face a difficult choice in the ongoing fallout from state investigations of bid rigging in the municipal securities market: cash in now, or wait and collect potentially larger payments later from antitrust lawsuits seeking treble damages from banks and broker-dealers.

The dilemma springs from an estimated $190 million that roughly two dozen state attorneys general netted from Bank of America Securities LLC, now Bank of America Merrill Lynch, UBS Financial Services Inc., and JPMorgan in settlements stemming from ongoing state probes of muni bid-rigging.

Lawyers representing the issuers have objected to the state AGs’ settlements, telling a federal judge in Manhattan who is presiding over the suits they are unfair to the issuers, who would have to give up their rights to continue suing the firms.

“We think that’s a really material decision point for a municipality or a state government,” said Megan Jones, a partner at Hausfeld LLP here.

The $190 million is roughly the amount the three firms paid to the state attorneys general to settle state-related violations stemming from the bid rigging.

That amount, which does not include attorneys’ fees or AG expenses, is less than half of the more than $525 million the three firms agreed to pay to settle antitrust, securities fraud, tax, and other charges with the Justice Department, the Securities and Exchange Commission, the Internal Revenue Service, the Office of the Comptroller of the Currency, the Federal Reserve Board, as well as the state AGs.

The bank regulators were not involved in the UBS settlement.

About $156 million of the money the SEC and OCC obtained from the three firms has already been distributed to muni cipal issuers and borrowers. Those two federal agencies, unlike the state AGs, did not require the issuers and borrowers receiving the money to waive their rights to sue the firms.

But the money obtained under the firms’ settlements with the state AGs’ has only been earmarked for distribution to government and nonprofit entities, according to court papers filed last month by the New York attorney general’s office.

The distribution of that money has been held up because lawyers representing the issuers and borrowers have argued that the issuers need to be fully informed that if they accept settlement money from the state AGs, they are effectively waiving their rights to sue the firms.

Last week, U.S. District Judge Victor Marrero, who sits on the U.S. District Court for the Southern District of New York and is presiding over the issuer cases, gave the state AGs and the issuers’ lawyers a 21-day deadline for filing a final draft of notices, so-called notice packets, that would be sent to potential claimants containing the information.

The state and local government plaintiffs were “not entitled to a detailed explanation of why they are being offered a certain share of the settlement fund,” Marrero wrote. “They need only be informed sufficiently about the rights and potential remedies they would be giving up with respect to [the civil litigation] in exchange for opting into the state agreement.”

The controversy over the AG settlements is rooted in the global settlements that Bank of America, UBS, and JPMorgan reached with federal and state regulators, and ongoing issuer lawsuits against dozens of firms, including these three, that are alleged to have been involved in the bid rigging of muni reinvestment contracts.

In December, Bank of America agreed to pay more than $137 million to settle charges from federal regulators and the state AGs over bid rigging alleged to have occurred between 1997 and 2005. In May, UBS agreed to pay more than $160 million to settle similar charges involving at least 100 reinvestment transactions in 36 states between 2001 and 2006. And last month, JPMorgan agreed to pay $228 million to settle similar charges involving at least 141 muni-bond related investment contracts involving state and local issuers and conduit borrowers in at least 31 states between 1997 and 2005.

The firms neither admitted nor denied the charges.

Separately, beginning in March 2008, state and local governments filed a series of lawsuits in federal courts alleging bid rigging in the municipal derivatives industry.

Those cases, including one seeking to create a nationwide class action lawsuit against 37 banks, insurance companies, and brokers, were consolidated before Marrero.

But late last year, within days after federal and state officials announced the Bank of America settlement, lawyers representing issuers and borrowers contested how the AGs would notify potentially eligible state and local governments about the availability of the proceeds, and the consequences of participating in the settlement.

The lawyers said the state AGs’ agreement had the potential, through certain “opt-in” provisions that would release Bank of America from liability, to extinguish some of their claims.

“BOA cannot be allowed to determine for itself what, if any, information should be provided to [issuers] or to make an end-run on court-approved notice,” wrote Michael Hausfeld, a partner at Hausfeld LLP, in a letter to Marrero dated Dec. 14, 2010.

In March, Marrero ordered the state AGs and private litigants to confer about the language of the notices to be sent to issuers and borrowers, saying they must contain “clear, concise, and neutral” information about the consequences of opting into the state AGs’ agreement.

In the interim, lawyers for the state and local governments filed similar requests about the UBS and JPMorgan settlements, saying they were too broad and interfered with their ability to manage the litigation.

One of the lawyers representing the state and local governments complained the state attorneys general settlement with JPMorgan did not encompass all the firm’s potentially unlawful conduct.

In particular, William Isaacson, a partner at Boies, Schiller & Flexner LLP in Washington, said the AGs’ settlement would release four years of potential claims without compensation.

The JPMorgan settlement covered muni derivatives entered into between Jan. 1, 2001, and Dec. 31, 2005, Isaacson wrote in a three-page letter sent to Marrero in July. But issuers who agreed to participate in the state AGs’ settlement would have to release all claims against JPMorgan spanning the period between Jan. 1, 1998, and Dec. 31, 2006.

“The [JPMorgan] settlement provides no explanation for why it fails to compensate for injuries which [issuers] suffered during these periods, or why this inadequate compensation should directly result in the waiver of any and all rights to recover for these injuries,” Isaacson wrote.

A spokesperson for the New York attorney general’s office, which is participating in the settlements, did not respond to a request for comment. But in a three-page letter filed with Marrero on July 12, the office called the allegations “baseless.”

The Bank of America, JPMorgan, and UBS settlements were “based on the types of municipal bond derivatives business the defendants conducted, the evidence the states compiled against each defendant, the revenues earned attributed to the illegal conduct, and a host of other factors,” Elinor Hoffmann, an assistant attorney general, wrote in the letter.

In addition, she said, the settlements covered derivatives transactions “during the years in which the unlawful conduct was at its height” for that firm.

She also said a state or local government could decide not to participate in the state AGs’ settlements and pursue claims in the civil litigation “or otherwise.”

Still, issuers who opt out of the state AGs’ settlements and pursue relief and damages from the civil lawsuits would face an uncertain fate that may unfold over many months, if not years.

“The fight isn’t over,” Jones said.

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