WASHINGTON - Wachovia Corp. disclosed yesterday that it has been named in three class action lawsuits alleging Wall Street and other firms conspired in anti-competitive price-fixing of municipal derivatives and guaranteed investment contracts, revealing the existence of a suit filed against nine firms late last month in a federal court in Manhattan by Haywood County, Tenn.
The disclosure, which the bank made in an 8-K filing with the Securities and Exchange Commission, brings the total number of similar class action suits over anticompetitive practices in muni derivatives and investments to at least four. They come as the SEC, the Justice Department, and the Internal Revenue Service may be close to filing charges in parallel criminal and civil investigations of alleged antitrust and anti-competitive practices in the municipal market, including bid-rigging and price-fixing.
Last month, Fairfax County, Va., and four other municipal bond issuers sued Wachovia and 35 banks, broker-dealers, and investment advisers. In another suit, the same group of issuers filed similar charges against Bank of America NA. And in a third action, Hinds County, Miss., sued Wachovia and 34 other companies "on behalf of itself and all other similarly situated state and municipal entities," according to court filings.
The Hinds and Haywood county suits, which use nearly identical language and were both filed in the U.S. District Court for the Southern District of New York, each allege that the firms engaged in a price-fixing conspiracy in which they concealed that they met secretly to discuss prices, and "intentionally creat[ed] the false appearance of competition by engaging in sham auctions in which the results were pre-determined." The other two Fairfax County-led suits were filed in the U.S. District Court for the District of Columbia.An attorney representing Haywood County, Michael J. Banks of Banks Law Firm in Brownsville, Tenn., said he was unaware of the Fairfax-led suits.
"I associate myself with the group up in New York," Banks said, referring to the court where Hinds County filed its suit. Banks said Haywood County is in good financial shape and only taps the market once every several years, but was nonetheless harmed by the alleged price fixing. The county is located between Memphis and Jackson, Tenn.
"The county does a bond issue every three, four, or five years, but obviously their prices were set in this price-fixing scheme on the few that they did issue," he said, adding that the county entered into derivatives contracts on top its bond sales. The suit doesn't reference any of the county's municipal-market transactions specifically, though. In fact, it only cites the swaps and Gics of other issuers, among them Atlanta and Gulf Breeze, Fla.
Meanwhile, the Wachovia filing also revealed that Hinds County would be willing to consolidate its case with the two pending before the D.C. court, but Precious Martin Sr., the attorney representing Hinds County, could not be reached yesterday for confirmation.
Attorneys at Cohen, Milstein, Hausfeld & Toll PLLC, one of the lead law firms in the Fairfax County-led issuer suits, had filed a motion with the U.S. Judicial Panel on Multi-District Litigation last month, urging it to both transfer and consolidate all of the cases with the federal court here. Though the firm asked the panel to allow it to make oral arguments on its motion, a hearing has yet to be scheduled.
The firm's motion and related memo, which were filed on behalf of Fairfax County, argue that transferring the case to the district court makes sense because a single court will be more efficient and Washington is a more convenient location for all parties.
The federal probes are believed to involve roughly 30 firms and potentially dozens of individuals, many of whom have recently received letters from the Justice Department notifying them that they are targets of a grand jury investigation.
The complaints filed by the Fairfax County-led issuers contend the those two suits stem from confidential discussions the issuers had over the last eight months with Bank of America, which last year entered into an amnesty agreement with the Justice Department. Under that agreement, the bank said it would fully cooperate with the Justice investigation in return for protection against criminal prosecution. The amnesty agreement, however, does not apply to civil charges.