Philadelphia sues seven big banks, alleges municipal bond collusion

  • In US
  • 2019-02-21 16:41:17Z
  • By By Jonathan Stempel

By Jonathan Stempel

NEW YORK (Reuters) - The city of Philadelphia has filed an antitrust lawsuit accusing seven major banks of conspiring to inflate interest rates for a type of bond used by cities, towns and other public entities, costing them potentially billions of dollars.

In a complaint filed on Wednesday night, Philadelphia accused Bank of America Corp, Barclays Plc, Citigroup Inc, Goldman Sachs Group Inc, JPMorgan Chase & Co, Royal Bank of Canada and Wells Fargo & Co of secretly manipulating rates for tax-exempt bonds known as VRDOs, or variable-rate demand obligations.

The city, which said it issued more than $1.6 billion of the bonds, said the banks colluded to collect hundreds of millions of dollars in fees they did not earn, reducing critical funding for public services and violating federal antitrust laws.

Philadelphia also said the banks' conduct is the subject of a preliminary criminal probe by the U.S. Department of Justice's antitrust division, while the U.S. Securities and Exchange Commission has contacted four of the banks. The criminal probe was reported in September by Bond Buyer, citing unnamed sources.

Bank of America, Citigroup, Goldman, JPMorgan and RBC declined to comment on Thursday. The other banks, the Justice Department and the SEC did not immediately respond to requests for comment. The complaint was filed in the U.S. District Court in Manhattan.

VRDOs are long-term bonds that let issuers borrow at lower short-term rates because they contain a "put" feature.

This lets investors redeem bonds early by tendering them to banks, such as the seven being sued. The banks then remarket the bonds to other investors and charge issuers for their services.

According to the complaint, the banks secretly agreed in person, by phone and electronically not to compete with each other for remarketing services from February 2008 to June 2016, when they controlled about 70 percent of VRDO remarketing.

Philadelphia said the banks did this to keep rates artificially high, ensure investors would not exercise their put options and collect fees "for doing, essentially, nothing."

The city is represented by Daniel Brockett, a partner at Quinn Emanuel Urquhart & Sullivan who has brought several antitrust lawsuits against banks in the Manhattan court.

Brockett was not immediately available to comment.

The Manhattan court is home to a wide array of private litigation accusing banks of conspiring to rig various financial markets, interest rate benchmarks and commodities.

The case is Philadelphia v Bank of America Corp et al, U.S. District Court, Southern District of New York, No. 19-01608.

(Reporting by Jonathan Stempel in New York; Editing by Dan Grebler)


More Related News

German lawmakers challenge deputy finance minister
German lawmakers challenge deputy finance minister's Goldman link in bank merger

BERLIN/FRANKFURT (Reuters) - German lawmakers on Monday criticized deputy finance minister Joerg Kukies and Goldman Sachs, alleging a conflict of interest in the U.S. investment bank advising state-backed Commerzbank on a possible merger with Deutsche Bank. Kukies, who was formerly co-head of Goldman Sachs in Germany, left the Wall Street firm a year ago to become deputy German finance minister. Kukies has since advocated a merger between Commerzbank and Deutsche Bank , which unions warn could mean up to 30,000 job cuts, people familiar with the matter say.

Indian Stocks Set to Surge on Goldman Upgrade, Earnings Growth
Indian Stocks Set to Surge on Goldman Upgrade, Earnings Growth

Equities of Asia's third-largest economy were raised to overweight from marketweight -- just six months after Goldman downgraded them -- analysts led by Sunil Koul said in a report on Monday. The Nifty 50 index will reach 12,500 in 12 months, implying a 9.1 percent gain from Monday's close, while earnings growth this year is expected to climb 16 percent, they wrote. India's foreign inflows are leading Asia, with net foreign buying of $5.2 billion.

7 Financial Stocks to Invest In Today
7 Financial Stocks to Invest In Today

The Federal Reserve rate hike in 2018 created a positive environment for investors in the financial sector and it has boosted financial stocks. U.S. financials, especially Bank of America (NYSE: BAC) and Citigroup (NYSE:C), for the most part, started their rally in 2016, when rates were close to the bottom. With the easy money already made and rate hikes slowing in 2019, investors may want to look outside of the U.S. and in the European markets for financial stocks to buy.

Malaysia summons two Goldman Sachs units linked to 1MDB scandal
Malaysia summons two Goldman Sachs units linked to 1MDB scandal

Malaysian prosecutors said Monday they will summon Goldman Sachs units in London and Hong Kong to appear at a June hearing of a case linked to corruption in state investment fund 1MDB. The Wall Street titan is accused of misleading investors in the case when it helped 1MDB raise $6.5 billion through a series of bond issues in 2012 and 2013. Malaysian authorities are seeking fines in excess of the $2.7 billion allegedly misappropriated from the bond issues as well as the $600 million Goldman earned in fees.

76ers top Bucks despite Antetokounmpo
76ers top Bucks despite Antetokounmpo's 52 points

Joel Embiid could not contain Giannis Antetokounmpo but the Philadelphia 76ers still edged out the Milwaukee Bucks

Leave a Comment

Your email address will not be published. Required fields are marked with *

Cancel reply


Top News: US

Hit "Like"
Don't miss any important news
Thanks, you don't need to show me this anymore.