Philadelphia sues seven big banks for getting ‘money for nothing’ from bond collusion
Published time: 22 Feb, 2019 05:05
The city of Philadelphia is suing Bank of America and six other major banks for conspiring to manipulate the rates of municipal bonds, illegally making millions of dollars while depriving the city of funds for public services.
Pennsylvania’s largest city, with over 1.5 million residents, filed the complaint late on Wednesday in the federal court in Manhattan. The city accuses Bank of America, Barclays, Citigroup, Goldman Sachs, JP Morgan Chase, Royal Bank of Canada and Wells Fargo of colluding to manipulate rates of variable-rate demand obligations (VRDO), of which Philadelphia has issued over $1.6 billion-worth.
The fees the banks collected, in violation of federal antitrust laws, have deprived Philadelphia and other jurisdictions of critical funding for public services, the lawsuit claims.
According to the court documents, the banks are already being criminally investigated by the Department of Justice’s antitrust division, while the US Securities and Exchange Commission (SEC) has contacted four of the defendants with questions about their conduct.
The lawsuit claims that phone and email records will show that the banks agreed not to compete with each other for VRDO remarketing services between February 2008 and June 2016, resulting in artificially high rates and banks collecting fees “for doing, essentially, nothing.”
Similar lawsuits are already being litigated in Massachusetts, California, Illinois and New York, accusing major banks of conspiring to “robo-reset” the rates of state VRDOs without any considerations for the local markets or investor demand, violating the requirement to market and price the bonds at the lowest possible interest rates.
Plaintiffs in those four lawsuits are seeking to recover over $1 billion in fees, ranging from $100 million in Massachusetts and $349 million in Illinois to $719 million in California, while the New York numbers have not been made available yet.