WASHINGTON — A group of California cities and localities are urging a federal judge in Manhattan not to dismiss the 13 cases they brought against Wells Fargo & Co. and 44 other banks, broker-dealers and investment brokers, charging they conspired to rig bids and fix prices of guaranteed investment and derivatives contracts in the muni market.
The group made their arguments in court filings about a week after the judge, Victor Marrero of the U.S. District Court for the Southern District of New York, refused to dismiss similar class action claims filed primarily by East Coast state and local governments.
Technically all of the civil suits have been consolidated, but the California localities’ suits are currently being treated separately because they were filed in California state courts and later transferred to the Manhattan court.
Given that the California municipalities — which include Los Angeles, Riverside, and the Sacramento Utility District — allege the same conspiracy and face the same pleading standards as their East Coast counterparts, the judge should not throw out their civil suits, they argued.
At this stage in the proceedings, the localities only need to argue that a bid-rigging conspiracy is plausible, rather than that it existed.
The 56-pages of court filings by the California localities were accompanied by hundreds of pages of exhibits that provide a fresh gloss on the Justice Department’s ongoing investigation into bid-rigging in the municipal market.
For instance, the exhibits include copies of a subpoena Riverside received last July as a federal grand jury was deliberating in the Justice Department’s criminal probe into bid-rigging and anticompetitive behavior in the muni market.
The grand jury later indicted CDR Financial Products Inc., as well as three other current and former CDR officials, in late October.
The Riverside subpoena is noteworthy in part because it suggests the government’s probe is ongoing and far broader in scope than just transactions involving CDR, the California municipalities argued.
Specifically, the subpoena seeks documents related to municipal derivatives contracts entered into by the city that were associated with a $110 million bond sale in 2004.
The derivatives include a $93.018 million guaranteed investment contract entered into with GE Trinity Plus; a $1.715 million GIC and a $6.466 million GIC, both entered into with MBIA Inc.; a $2.316 million GIC entered into with Financial Security Assurance; and an $82.5 million swap entered into with Merrill Lynch & Co.
The municipalities said none of these transactions are listed in the Justice Department’s “bill of particulars” identifying about 250 transactions believed to have been affected by the alleged bid-rigging and price-fixing conspiracy.
But bidding for the GICs won by MBIA was “determined through statistical analysis to have the largest spreads between highest and lowest bids in any of the bidding patterns analyzed,” which “plausibly suggests the existence of courtesy bidding,” the municipalities argued. A courtesy bid is an intentionally noncompetitive bid that a provider submits with no intention of winning.
Last week’s exhibits also include a December letter from Justice Department attorneys notifying San Diego County, one of the plaintiffs, that it may be a victim of the alleged bid-rigging conspiracy.
County officials could not be reached for comment. The only deal involving the county in the department’s list of transactions was an $110 million electric revenue bond transaction sold in 1999.
The California entities allege essentially the same conspiracy as the East Coast issuers, and name some of the same defendants, in addition to Wells Fargo: Bank of America, Bear Stearns & Co., JPMorgan Chase & Co., Morgan Stanley, National Westminster Bank PLC, Piper Jaffray & Co., Societe Generale SA, UBS AG, Wachovia NA, Natixis SA, Investment Management Advisory Group Inc., CDR, Winters & Co., George K. Baum & Co., and Sound Capital Management Inc.
But the California Plaintiffs also name a number of defendants who are not in the class action suits, including: AIG Financial Products Corp., Assured Guaranty US Holdings Inc., Bayerische Landesbank Girozentrale, Citibank NA, Citigroup Financial Products Inc., Citigroup Global Markets Holdings Inc., Dexia SA, FSA, First Southwest Co., General Electric Capital Corp., GE Funding Capital Market Services, Inc., Goldman Sachs Bank USA, and Goldman Sachs Group.
That criminal case is also pending before Marrero and a trial is tentatively set for early next year.
Since last year’s indictment of CDR, the Justice Department has announced that three more ex-CDR officials have agreed to plead guilty and testify on the government’s behalf. A status conference is next set for May 14.
In his March 25 order on the class action cases, which were brought by Hinds County, Miss., and other municipal issuers, Marrero refused to dismiss the suit, saying that the allegations “support a plausible inference” that each of the remaining defendants “participated in the alleged” conspiracy.
The judge also scheduled a status conference on the civil suits for April 30.