Lawsuit challenges Louisiana’s pro-gun bond underwriting policy

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A Louisiana woman has filed a lawsuit contending that the State Bond Commission unlawfully excluded two investment banks from underwriting its bonds because of their corporate gun policies.

The Bond Commission, which voted last year to prohibit Citi and Bank of America Merrill Lynch from participating in the state’s first issuance of grant anticipation revenue vehicle bonds, discussed the suit Thursday. The deliberations occurred behind closed doors and no public statement was made.


The commission “acted arbitrarily, capriciously, abused its discretion, eschewed a competitive bidding process, and abdicated its duty to responsibly expend taxpayer funds,” according to the complaint, filed by Louisiana resident Sandra Brown in the 19th Judicial District Court in Baton Rouge on June 18.

It doesn’t seek to have the bonds nullified.

Brown is requesting an injunction barring the Bond Commission from disqualifying banks in the future for the same reasons. The suit also requests that the court find that the commission acted unlawfully, said Brown’s attorney, David LaCerte, a partner with Sternberg, Naccari & White LLC.

“This case is important because it directly deals with issues of fiscal responsibility and touches on issues of free speech,” LaCerte told The Bond Buyer Thursday. “The government arbitrarily regulating the content of speech is a slippery slope which may not only trample constitutional rights but also needlessly increase the cost of financing public projects.”

The suit is based on the commission's response last year to new firearms policies implemented by Citi and BAML after 14 students and three adults were gunned down at Marjory Stoneman Douglas High School in Parkland, Florida.

BAML said it would stop lending to companies that make assault-style guns for non-military purposes. Citi’s policy asked new retail sector clients to adhere to “best practices” policies for firearms sales, including a minimum age of 21 for gun buyers and not selling bump stocks or high-capacity magazines.

Those policies led to statements of outrage from Second Amendment supporters, including U.S. Sen. John Kennedy, R-La., who wrote to state Treasurer John Schroder before the April 26 Bond Commission meeting, urging Schroder to determine if Citi and BAML have business dealings with the commission or the state. Schroder also chairs the bond commission.

“There is no reason for these banks to profit from taxpayer-funded contracts while excluding Louisiana businesses from their banking services,” said Kennedy, who was the state treasurer for 17 years before taking the Senate seat in 2017.

Kennedy’s request led a majority of the Bond Commission, including Schroder, to approve a new solicitation procedure for the sale of up to $650 million of Garvees to finance four major transportation projects. So far, $185 million of the bonds have been issued, according to data from Refinitiv.

Underwriters interested in working on the deals were asked if they have gun policies that “restrict or would otherwise infringe on the constitutionally protected rights of the citizens of the state to lawfully keep and bear arms.” Both Citi and BAML indicated on their responses that their policies would not affect the rights of individuals to bear arms.

Louisiana State Attorney General Jeff Landry said both banks’ responses were “misleading and disingenuous,” and would justify excluding them from further consideration.

“The commission should not conduct business with dishonest entities that discriminate against the law abiding citizens and businesses in the state of Louisiana,” Landry wrote in an Aug. 14, 2018 letter to Schroder.

Landry, whose office is defending the suit against the bond commission, doesn’t typically comment on pending litigation, said the attorney general’s special assistant Jacques Ambers.

Despite warnings from some commissioners that banning the banks could cost the state more money, the panel voted 7-6 on Aug. 16, 2018, to block Citi and BAML from being considered as senior managers.

“Treasurer Schroder will not comment on this matter as it is ongoing litigation,” said spokeswoman Ruth Wisher.

The state's response to the lawsuit is due Aug. 9.

LaCerte said developing the suit against the Bond Commission involved extensive public records requests, and that he hadn’t determined “whether kicking the two banks out of the bidding process cost the state any money and if so how much.”

Both the state treasurer’s office and the Division of Administration were asked if banning the two banks from working on the Garvee deals cost the state more money, but neither provided an immediate response.

According to The Advocate newspaper, a review of state records showed that tossing out proposals by Citi and BAML “may have cost taxpayers around $50,000” because the banks sought lower fees on the bonds than other bidders.

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Sell side Garvee bonds Lawsuits State of Louisiana Louisiana Bond Commission Citigroup Bank of America Merrill Lynch Louisiana
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