Thirty-seven companies named in municipal derivatives antitrust class action lawsuits

By Jennifer Chiou

New York, March 14 - The State of Mississippi, the City of Chicago and Fairfax County, Va., among other plaintiffs, filed two nationwide class action lawsuits on Wednesday in the U.S. District Court for the District of Columbia against 37 leading banks, insurance companies and brokers alleging widespread price-fixing and bid-rigging in the multi-billion dollar municipal derivatives industry dating back to 1992, according to a news release.

The plaintiffs and the class they seek to represent are state, local and municipal governments and their agencies, as well as private entities, that purchased municipal derivatives from or through any of the following defendants: AIG Financial Products Corp.; AIG SunAmerica Life Assurance Co.; GE Funding Capital Market Services, Inc.; Genworth Financial Inc.; JPMorgan Chase & Co.; Bear, Stearns & Co., Inc.; Societe Generale SA; UBS AG; Lehman Brothers Inc.; Merrill Lynch & Co. Inc.; Morgan Stanley; Wachovia Bank NA; Natixis SA; Financial Security Assurance Holdings, Ltd.; Financial Security Assurance, Inc.; Financial Guaranty Insurance Co.; Trinity Funding Co. LLC; Piper Jaffray & Co.; Security Capital Assurance Inc.; XL Asset Funding Co. LLC; XL Life Insurance & Annuity, Inc.; National Westminster Bank plc; and Bank of America NA.

Municipal derivatives are used to invest the proceeds of municipal bonds, the release said, adding that because municipal bonds commonly fund multi-year public works projects, most of their proceeds cannot be spent immediately and must be invested to earn interest until they are ripe for use.

These investment vehicles are known as municipal derivatives, an umbrella term that refers to various tax-exempt vehicles, including guaranteed investment contracts, advance refunding escrows, swaps, options, swaptions, collars and floors, the release added.

"This appears to be one of the longest running, most economically pervasive antitrust conspiracies ever to be uncovered in the U.S.," Michael D. Hausfeld, senior partner at Cohen, Milstein, Hausfeld & Toll, PLLC and attorney for the plaintiffs, said in the release.

"As a result of this conspiracy, the plaintiffs and other class members were deprived of extra money they otherwise would have received from their municipal bond investments and could have spent on important public works projects such as roads, buildings, and mass transit."

The release noted that the lawsuits come on the heels of a nearly two-year-old investigation by the United States Department of Justice's Antitrust Division, the Internal Revenue Service and the Securities and Exchange Commission into industry-wide collusive practices in the two-hundred-year-old municipal bond industry.

A grand jury investigation currently is being conducted by the Antitrust Division in the United States District Court for the Southern District of New York, the release said, adding that about 30 large commercial and investment banks, insurance companies, and brokers have been subpoenaed, and the offices of three brokers have been raided by the Federal Bureau of Investigation.

Because Bank of America has committed to cooperating with the plaintiffs because its alleged wrongdoing occurred during a shorter period than was the case for its co-conspirators, and because the parties are engaged in early discussions to see if a settlement can be achieved, one lawsuit names Bank of America as the sole defendant and alleges a class period of Jan. 1, 1998 through Dec. 31, 2004, the release said.

The other lawsuit names the other companies listed above as defendants and alleges a class period of Jan. 1, 1992 through the present, the release added. The release was issued by Cohen, Milstein, Hausfeld & Toll along with Boies, Schiller & Flexner LLP.

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