JPMorgan Chase & Co. has agreed to pay $228 million to federal and state agencies to settle charges that its employees manipulated the bidding process for municipal investments and contracts over a nearly eight year period.

The settlement marks the third case of its kind as part of an ongoing investigation by the Securities and Exchange Commission and other authorities into a sector known as municipal reinvestment industry.

JPMorgan Chase’s scam worked like this: when a municipality issues a bond, it receives money, but it typically doesn’t need to spend it all immediately. In that interim period – when it has the bond proceeds but isn't ready to spend them – the municipality puts that money into a security. Per Internal Revenue Service regulations, firms bid for that business.

But from 1997 to 2005, a JPMorgan Chase subsidiary manipulated that bidding process to ensure profits.

The company sometimes won bids when it got  a “last look” at competing bids by obtaining the information from bidding agents. Other times, it won when a bidding agent would intentionally solicit bids from others that were sure to lose. In other cases, JPMorgan Chase itself submitted bids intentionally designed to fail so other companies could get in on the action.

According to authorities, the scam affected at least 93 municipal bond transactions in 31 states.

“By entering into illegal agreements to rig bids on certain investment contracts, JPMorgan and its former executives deprived municipalities of the competitive process to which they were entitled,” said assistant attorney general Christine Varney, head of the Justice Department’s anti-trust division, in a statement.

The actions affected the integrity of the bidding process, since municipalities may not have been getting the best deal. The company's actions also had the potential to jeopardize the tax-exempt status of the municipalities' bonds, since it would undermined the IRS-required bidding process.

Federal authorities didn't release the names of the affected municipal issuers.

The settlement works out like this: $50 million to the IRS, $51.2 million to the SEC, $35 million to the Office of the Comptroller of Currency, and $75 million to state attorneys general offices. (The total doesn't equal the full $228 million due to credit JPMorgan Chase was given by states for some of the other payments.)

Of the settlement, a total of $129.7 million will be eligible for payment to municipalities and other tax-exempt issuers affected by the deals.

“When powerful financial institutions like (JPMorgan Chase) conspire with each other to intentionally violate regulations designed to ensure fair investment prices, the integrity of the municipal marketplace becomes corrupted,” said Elaine C. Greenberg, chief of the SEC's Municipal Securities and Public Pensions Unit, in a statement. “Rather than playing by the rules, the rules got played.”

The SEC has been investigating fraud related to municipal investments, and this marks the third settlement of its kind. In December, Banc of America Securities faced a similar charge and agreed to a $137 million settlement. In May, the SEC charged UBS Financial Securities with bid ridding, and it agreed to a $160 million settlement.

In a statement, JPMorgan Chase said its municipal derivatives desk was discontinued in September 2008.

“JPMorgan Chase does not tolerate anti-competitive activity or other violations of law,” the company wrote. “The firm assisted the government agencies in their investigations and is pleased to have resolved this matter with its regulators.”

In 2009, the SEC charged JPMorgan Chase with executing a scam that affected bond offerings from Jefferson County, Ala., which today teeters on the verge of becoming the country's largest municipal bankruptcy ever. The company agreed to pay a $25 million penalty, a payment of $50 million to the county, and forfeit $647 million in fees.

Company officials were accused of paying county commissioners' friends in exchange for their votes to give the company contracts to serve as underwriter for bond offerings and other transactions.