San Francisco, California’s fourth-largest city, sued five bond insurance firms Wednesday, alleging “an elaborate web of anticompetitive practices, negligence, and fraud that has been exposed by the recent meltdown in the subprime mortgage market.”
The suit accuses Ambac Financial Group Inc., MBIA Inc., XL Capital Assurance Ltd, Financial Guaranty Insurance Co., and CIFG Assurance North America Inc. of fraud, breach of contract, negligence, and violation of state antitrust laws. The suit also names Jason Kissane of MBIA and Neil Pack of CIFG as defendants. They head their firms’ San Francisco offices.
The suit alleges that the city and county of San Francisco was “forced” to buy “worthless” bond insurance because the insurers colluded to maintain a system of “dual ratings” that unfairly discriminated against municipalities. It alleges that insurers also hid the extent of their backing of subprime mortgage-backed securities, hiding the true weakness of their own credit.
The civil suit seeks to recover unspecified compensatory and punitive damages
“These defendants manipulated demand for insurance we never needed, based on creditworthiness they never had, to cover bets they should never have made,” said San Francisco city attorney Dennis Herrera.
“If they had known that the insurer defendants had billions of dollars in exposure to risky subprime and subprime-related instruments, plaintiff would not have purchased bond insurance,” according to the suit filed in California Superior Court in San Francisco.
The city is represented by Cotchett, Pitre & McCarthy of Burlingame and Renne Sloan Holtzmman Sakai LLP of San Francisco. The firms are also representing Oakland, Los Angeles, and Stockton in similar cases filed earlier in the summer.
