Eight Banks Must Face Allegations Of Bond Collusion

A federal judge on Monday, November 2, said Philadelphia and Baltimore may sue eight big banks for allegedly conspiring to force state and local governments to pay inflated interest rates on a popular type of tax-exempt municipal bond, reported Reuters.

US District Judge Jesse Furman in Manhattan said the cities may pursue antitrust claims in the proposed class action over the banks’ marketing of variable-rate demand obligations, once a more than US$400 billion market, from 2008 to 2016.

Philadelphia and Baltimore claim the collusion reduced available funding for hospitals, power and water supplies, schools, transportation, and other essential municipal services.

The defendants include affiliates of Bank of America, Barclays,  Citigroup, Goldman Sachs Group, JPMorgan Chase, Morgan Stanley, Royal Bank of Canada, and Wells Fargo.

Philadelphia and Baltimore, which issued a respective US$1.67 billion and US$261 million of VRDOs, accused the banks of sharing proprietary information about bond inventories and planned rate changes.

They claim this dissuaded redemptions, and enabled the banks to charge hundreds of millions of dollars in remarketing and service fees for “effectively doing nothing.”

In his 34-page decision, Judge Furman wrote the cities offered “reason to believe that defendants stood to gain by participating in the rate-fixing scheme and that the scheme was possible only with defendants’ coordinated efforts.”

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