A federal judge in New York City has dismissed most of the class action claims filed last year by five municipal issuers that alleged Wall Street and other firms engaged in a secret, anticompetitive price-fixing conspiracy of municipal derivatives and guaranteed investment contracts.
However, Judge Victor Marrero did not dismiss the claims the issuers filed against Bank of America NA, which has entered into an indemnity agreement with the Justice Department under which it is fully cooperating with Justice's ongoing antitrust investigation in this area.
In a 50-page order issued April 29, Marrero of the U.S. District Court for the Southern District of New York, said that because of Bank of America's indemnity agreement, "it is not inconceivable that discovery may reveal more specific details about the identifies and activities of BoA's alleged co-conspirators."
Marrero, however, said that the plaintiffs generally failed to allege specific instances of antitrust violations, as they are required to do under a 2007 Supreme Court ruling, for the other defendants. He gave them 20 days to re-plead the case citing specific instances of alleged anti-competitive behavior.
Michael Hausfeld, a principal at Hausfeld LLP, which is representing the issuers, said the issuers plan to re-plead the claims to focus on Bank of America's alleged misconduct.
The class action suit was led by Hinds County, Miss., and included as co-plaintiffs Fairfax County, Va., Mississippi, Baltimore, and the Central Bucks, Pa., School District. Specifically, it alleged that 37 banks, brokers, insurance companies, and investment advisory firms - including CDR Financial Products, JP Morgan, and Bank of America - conspired to fix the muni derivatives market in violation of federal antitrust law.
As a result, the suit claimed, issuers were hurt by alleged widespread price fixing and bid-rigging in the multimillion-dollar municipal derivatives industry since 1992.
The class action stemmed from several individual suits filed in multiple federal courts that were consolidated in the New York court last year after the Justice Department, Securities and Exchange Commission, and Internal Revenue Service launched parallel criminal and civil investigations of alleged antitrust and anti-competitive practices in municipal investments and derivatives, including bid-rigging and price fixing.
The federal investigations are believed to involve roughly 30 firms and potentially dozens of individuals, many of whom have received letters from the Justice Department notifying them that they are targets of the grand jury investigations. JPMorgan disclosed Thursday in a quarterly filing the SEC had told it in April that it planned to soon file charges against the firm over Jefferson County, Ala., derivatives transactions. The firm said it is trying to resolve the matter prior to litigation.
But Marrero said that the class action suit, instead of making specific allegations of anti-competitive behavior, simply listed "basically every type of conspiratorial activity that one could imagine."
The handful of specific allegations of abuse that are cited all fall outside a four-year statute of limitations and the issuers did not indicate the defendants concealed the conduct, proof of which would be needed to get around the four-year limitation, Marrero said.
Of the 37 firms named in the class action, few were tied to specific instances of anti-competitive behavior, the judge noted. The states and localities argued these firms were a part of a conspiracy. But they rested their arguments on a number of claims that Marrero rejected as proof of a conspiracy such as that they issued and sold municipal derivatives to plaintiffs; that there is a history of anticompetitive behavior in the muni market; that there are a number of ongoing criminal investigations tied to swaps and GICs, and that the firms are members of some of the same trade associations and attended industry conferences.
