Wall Street banks deal with $8 billion in local bond price-fixing claims

Some of the greatest rely on Wall Street are anticipated to go to trial in Illinois next month to deal with accusations they pumped up rate of interest on bonds to fund public works.

John Taggart/Bloomberg

After nearly a years and unknown countless dollars in legal charges, a few of Wall Street’s greatest banks will lastly get their day in court on accusations of price-fixing in the local bond market — that is if they do not settle initially.

Bank of America, Barclays Capital Inc., BMO Financial Corp., William Blair & Co. LLC, Citigroup Inc., Fifth Third Bancorp, JP Morgan Chase & Co. and Morgan Stanley are anticipated to go to trial in Illinois next month to deal with accusations they pumped up rate of interest on bonds to fund public works to prevent financiers from returning them for money and conspired in setting the rates.

It is the very first of 4 such cases initially submitted under seal in 2014 by a Minnesota monetary consultant, B.J. Rosenberg, stating that the banks triggered a cumulative $1.5 billion in damages and looking for restitution for triple that quantity. Another $6.5 billion in damages hangs in the balance in antitrust lawsuits in New York.

A lots banks are offenders throughout the 4 claims which likewise cover California, New York and New Jersey. The claims declare that from 2008 till reasonably just recently the banks — serving as remarketing representatives for long-lasting bonds with regular rate changes, called variable-rate need responsibilities or VRDOs — stopped working to get providers the most affordable possible rate of interest on securities where rates were generally reset on an everyday or weekly basis to prevent financiers from returning them for money.

After an initial hearing on July 12, the Illinois trial submitted on behalf of the state by an entity called Edelweiss Fund LLC is arranged to start in Cook County Circuit Court on Aug. 7. 

A settlement is likely, according to Elliott Stein, a senior lawsuits expert with Bloomberg Intelligence. 

“One critical reason to settle is that potential damages in these cases can be tripled, so settling can mitigate the potential fallout,” stated Stein in an e-mail Friday. “Settling can also avoid bad evidence coming out or a bad outcome, which could potentially then be used in the other related cases.”

Settlement of the 4 False Claims Act cases might go to about $1.5 billion, Stein approximated. Barclays and Citigroup decreased to comment; the other banks have not reacted to ask for remark.    

In their newest movement for summary judgment, the banks stated they exercised their judgment in setting rates for VRDOs, which “cannot be second guessed; it is ‘conclusive’ and ‘binding.'” They likewise stated that considering that the suit was unsealed in 2017, providers “have continued to pay Defendants to perform the very remarketing services attacked” under the suit without any proof recommending providers are conditioning payment on any particular interest-rate requirements.

In addition to the 4 False Claims Act claims, an antitrust suit was submitted by Philadelphia and Baltimore in 2019 in the Southern District of New York, likewise declaring adjustment of VRDO rates. The New York fit is most likely to produce claims of $6.5 billion in damages with payment looked for once again tripling, according to BI’s Stein. 

He anticipates a settlement of about $1 billion, with Bank of America on the hook for the most — about $225 million.

The market for VRDO financial obligation has actually been diminishing considering that the monetary crisis when in 2008 more than $115 billion of financial obligation was offered to re-finance both auction-rate and insured floating-rate financial obligation, as the auction market froze and insurance provider were devalued amidst the turmoil.

In the early years of this century, providers offered in between $30 billion and $60 billion of VRDO financial obligation every year. In 2022, they offered around $6 billion in such financial obligation, according to information put together by Bloomberg.

So far this year, providers have actually offered $4.2 billion. There are presently around $128 billion in VRDOs exceptional.


A news media journalist always on the go, I've been published in major publications including VICE, The Atlantic, and TIME.

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