IDD Daily Updates and Restructuring Alert Weekly Updates, our email alerts
LA Goes After Bulge-Bracket Banks
City claims the firms committed fraud, engaged in deceptive business practices and violated portions of California's antitrust laws.
July 24, 2008
Los Angeles has lowered the boom on a bevy of bulge-bracket institutions including Bank of America, Citigroup, JPMorgan, Lehman Brothers, Merrill Lynch, Morgan Stanley and a group of bond insurers, filing suit against the financial institutions.
The city issued a statement about the suit on Thursday, filed by Los Angeles City Attorney Rocky Delgadillo against 30 financial institutions and bond insurers Ambac Financial and MBIA, among others, that claims the firms committed fraud and engaged in deceptive business practices. It also says the Street firms have violated multiple portions of California’s antitrust laws.
“It’s time these corporations are held accountable for systematically cheating our taxpayers out of tens of millions of dollars, and doing so in clear violation of State law,” said Delgadillo.
The city said the financial institutions engaged in market collusion and bid rigging practices over investment of the city’s municipal bond issuances. Once the city sells its bonds, a bidding process for investment of the proceeds is scheduled in order to secure the best competitive rates.
Bank of America has already agreed to cooperate with the Department of Justice in exchange for immunity from criminal prosecution, according to the city. In addition, BofA is expected to disclose further details about the scheme as part of its arrangement with the city of Los Angeles.
Bond insurers were named in the suit because the city was required to “unnecessarily purchase insurance from bond insurers including XL Capitol Assurance, ACA Financial Guaranty, Financial Guaranty Insurance and CIFG Assurance North America that colluded to maintain a discriminatory dual credit rating system that charged the city and other public entities exorbitant premiums.”
The downgrades of bond insurers’ AAA ratings, meanwhile, will result in higher premiums, higher interest rates and other refinancing costs for cities like Los Angeles, according to the city.
Law firms Renne Sloan Holtzman Sakai and Cotchett, Pitre & McCarthy are providing counsel to the city of Los Angeles.
“Today we’re sending the message that if you cheat the city, we will come at you with everything we’ve got, whether you’re a gang banger or a Wall Street titan,” Delgadillo said.
For more information on related topics, visit the following:
