Municipal Derivatives Antitrust Class ActionMississippi, Chicago, and Fairfax County, Virginia, File Class Action Alleging Widespread Price-Fixing and Bid-Rigging in the Multi-Billion Dollar Municipal Derivatives Industry The State of Mississippi, the City of Chicago, and Fairfax County, Virginia, among other plaintiffs, filed two nationwide class action lawsuits on March 12 in the U.S. District Court for the District of Columbia against thirty seven 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. Plaintiffs are represented by Cohen, Milstein, Hausfeld & Toll, P.L.L.C. and Boies, Schiller & Flexner LLP, among other firms. 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.; JP Morgan Chase & Co.; Bear, Stearns & Co., Inc.; Société Générale SA; UBS AG; Lehman Brothers Inc.; Merrill Lynch & Co. Inc.; Morgan Stanley; Wachovia Bank N.A.; Natixis S.A.; Financial Security Assurance Holdings, Ltd.; Financial Security Assurance, Inc.; Financial Guaranty Insurance Company; Trinity Funding Co. LLC; Piper Jaffray & Co.; Security Capital Assurance Inc.; XL Asset Funding Company LLC; XL Life Insurance & Annuity, Inc.; National Westminster Bank plc; or Bank of America N.A. Municipal derivatives are used to invest the proceeds of municipal bonds. 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. "This appears to be one of the longest running, most economically pervasive antitrust conspiracies ever to be uncovered in the U.S.," said Michael D. Hausfeld, senior partner at Cohen, Milstein, Hausfeld & Toll, P.L.L.C., and attorney for the plaintiffs. 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 lawsuits come on the heels of a nearly two year old unprecedented 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. Approximately thirty 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. Numerous employees and former employees of various defendants recently received letters notifying them that they are regarded as targets of the grand jury investigation. The lawsuits also follow Bank of America’s conditional acceptance into the Antitrust Division’s amnesty program, in connection with which there was disclosure of information regarding the conspiracy described below and the promise to provide full and complete cooperation to the Antitrust Division and the plaintiffs and the class they seek to represent. 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 January 1, 1998 through December 31, 2004. The other lawsuit names as defendants the other companies listed above, and alleges a class period of January 1, 1992 through the present. Plaintiffs are represented by Cohen, Milstein, Hausfeld & Toll, P.L.L.C. and Boies, Schiller & Flexner LLP, among other firms. Both firms have extensive experience prosecuting antitrust class actions and have been responsible for a number of outstanding recoveries for their clients totaling in the billions of dollars. |
