OAKLAND - Oakland filed a federal class action lawsuit yesterday against 37 banks, brokers, insurance companies, and investment advisory firms, accusing them of violating antitrust law with anticompetitive price-fixing of municipal derivatives and guaranteed investment contracts.

The charges in the city's lawsuit, announced by John Russo, the city attorney, parallel those made in at least four other lawsuits filed by issuers in federal courts in New York and the District of Columbia.

Russo said he anticipates that the different lawsuits will be consolidated.

"Clearly we hope they would be consolidated here in the Northern District of California," he said. "That would be in Oakland's interest."

The suit focuses on guaranteed investment contracts the city has bought to reinvest bond proceeds, arguing that market participants colluded to rig the bidding to create artificially low returns for the city.

While Oakland and other issuers have competitive bidding processes in place to award GICs, the defendants regularly colluded to ensure that only one firm would submit a reasonable, financially viable bid, the lawsuit argues. "The other two or more bidders submit Bids offering unjustifiably low Rates of Return, or simply refuse (or 'pass') on the opportunity to bid," the lawsuit alleges.

"Our damages may be in excess of a half-million dollars," Russo said at a press conference yesterday. "The proposed class in this action will consist of thousands of cities, counties, school districts, and other public entities who were overcharged in the realm of tens of millions of dollars or even more."

The Oakland City Council authorized the lawsuit Tuesday, Russo said. The city is the only plaintiff so far, but he expects many other governments to join.

As with the other class-action suits, Oakland's case stems from parallel criminal and civil investigations conducted by the Justice Department, the Securities and Exchange Commission, and the Internal Revenue Service, looking at alleged antitrust and anticompetitive practices in the municipal market, including bid-rigging and price fixing.

The key, Russo said, was Bank of America's entrance last year into an amnesty agreement with the Justice Department, under which the bank agreed to fully cooperate in the Justice investigation in return for protection against criminal prosecution.

"Bank of America has in effect turned states evidence in this case and is cooperating," Russo said.

"They are talking about how this process worked," he said. "Without those revelations I'm not sure we bring this lawsuit because we may not have had good faith grounds to bring it, even if we had suspicions."

Bank of America Corp.and Bank of America NA are among the 37 firms named as defendants.

Oakland's outside attorneys for the suit are Lieff, Cabraser, Heimann & Bernstein, LLP, and Moscone, Emblidge & Quadra, LLP.

In March, Fairfax County and the state of Mississippi were among the plaintiffs who filed two similar suits in the U.S. District Court for the District of Columbia, one against Bank of America and the other naming 36 other firms.

Haywood County, Tenn.,and Hinds County, Miss., have also filed similar suits in the U.S. District Court for the Southern District of New York.

 

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