Edelweiss unmasked: Whistleblower is Minnesota-based muni advisor

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WASHINGTON — The man behind a series of whistleblower lawsuits accusing banks and broker dealers of fraud in the variable-rate demand obligation markets is Bjorn Johan Rosenberg, The Bond Buyer has exclusively learned.

Rosenberg is a registered municipal advisor who is chairman of the Minnesota-based holding company Tril 1 LP.

Rosenberg, who most frequently goes by “Johan,” was named as the whistleblower Edelweiss Fund LLC by sources who confirmed his identity to The Bond Buyer. Rosenberg's holding company owns, among others, the muni advisory firm Blue Rose Capital Advisors. A U.S. Patent Office filing shows that Rosenberg filed in December 2012 for a patent on a web application that “can be used to create various analytical reports on variable rate securities,” and that he was granted that patent in January 2015.

Rosenberg's whistleblower suits have been filed in at least Illinois, California, Massachusetts and New York, and served as the basis for the City of Philadelphia's lawsuit filed in federal court last month. The suits charge some of the nation’s largest dealer firms with using a “Robo Resetting” device to fraudulently impose artificially high interest rates on VRDOs so they would not have to be remarketed.

Rosenberg was due to publicly identify himself soon due to a Massachusetts court's finding that he could not pursue the litigation as a corporation, so he would have to file a new complaint as himself. That amended complaint was filed Friday following the reveal of the man behind Edelweiss Fund.

"As a result of a recent Massachusetts court decision, Johan was required to identify himself as the person associated with Edelweiss Fund," said David Lieberman of the Whistleblower Law Collaborative, who represents Rosenberg and Edelweiss in the Massachusetts suit. "The important revelation here is not who Johan is, but what was uncovered as a result of the analysis described in the Massachusetts complaint – as alleged in detail, the manner in which the defendants defrauded state and local governments and charitable organizations and colluded in mechanically resetting VRDO rates."

"The banks named in the state court complaint promised, in general, that they would use their judgment to reset the interest rates at the lowest rate that permitted the sale of the VRDOs," Lieberman continued. "What the analysis alleged in the state court complaint explains in great detail, however, is that they used no judgment at all, but rather mechanically reset rates en masse, without any consideration of the individual characteristics of the bonds, the associated market conditions, or investor demand, and that they colluded in doing so."

The complaint alleges facts similar to the other VRDO cases, and names numerous bank employees alleged to have participated in a scheme to keep VRDO interest rates too high. Rosenberg discovered the conduct after performing his own analysis, according to the suit.

As a whistleblower, Rosenberg stands to reap millions of dollars for himself depending on how much, if any, money the lawsuits he filed on behalf of issuers win in damages for those issuers.

Rosenberg's firm Sound Capital Management, of which he was chief executive, was among several searched by federal agents as part of the guaranteed investment contract bid-rigging investigation in 2006. Neither he nor any of his firm's employees were charged, but they were implicated in testimony from former JPMorgan Chase broker James Hertz.

Lynne Funk Posner contributed to this report.

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Broker dealers Securities law Lawsuits Secondary bond market Variable-rate bonds Washington DC Minnesota
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