SCOTUS allows $12 billion class action VRDO lawsuit to advance

Kent Nishimura/Bloomberg

A class action lawsuit brought by a group of cities accusing Wall Street banks of rigging interest-rates on their variable-rate demand bonds will advance after the U.S. Supreme Court this week left in place the class certification.

The cities are seeking $12 billion — after trebling — from the banks, which they accuse of colluding to artificially raise rates on more than 12,000 VRDOs from 2008 to 2015. Baltimore, the San Diego Association of Governments and Philadelphia brought the consolidated claims in federal court in 2019 on behalf of themselves and a proposed class of local and state issuers.

Bank of America and seven other banks in December petitioned the nation's top court to deny the cities from collectively suing them. The banks, which deny the accusations, have argued that the cities should be required to sue for damages individually and that the district judge was wrong to certify the case as a class action.

The Supreme Court rejected the banks' petition without comment.

The U.S. District Court for the Southern District of New York granted the class certification in 2023. In the ruling, the judge said the pair of experts hired by the cities offered strong evidence of a conspiracy. Last year, New York's 2nd U.S. Circuit Court of Appeals last year upheld the certification.

In their December 2025 SCOTUS petition, the banks argued that district judges should first resolve disputes among third-party experts before granting class certification. In the VRDO case, the cities had relied on business professor William Schwert to estimate the VRDO rates that supposedly would have prevailed absent the alleged conspiracy in an effort to prove common injury across the class.

The banks' experts, Glenn Hubbard and John Chalmers, argued against Schwert's testimony, saying he did not accurately distinguish between inflated and non-inflated VRDO rates, among other factors.

If left in place, the 2nd circuit ruling would encourage overly broad class certifications and damages and led to coerced settlements, the banks argued.

In their response, the cities argued that "it is well established that, in ruling on a motion for class certification, the district court should examine only whether a question can be decided class-wide using common evidence, not whether the question will be answered on the merits in the plaintiff's favor."

In addition to Bank of America, the defendants include: Barclays, Citigroup, Goldman Sachs & Co., JPMorgan Securities LLC, RBC Capital Markets LLC, Wells Fargo Bank NA, Wachovia Bank NA, and Morgan Stanley & Co LLC.

The class action suit is closely related, but not identical, to state-level false claims lawsuits brought by Minnesota-based municipal advisor Johan Rosenberg, who filed them under the name of a Delaware-incorporated entity called Edelweiss Fund LLC. The active state cases are in California, New York and New Jersey.

A California judge has set a trial date for June 8. The New York case, which last year analyzed the banks' rate-setting practices, recently had a March 27 hearing. The New Jersey Supreme Court has agreed to hear an appeal — likely in the spring — of a lower court's decision that granted summary judgment to the banks.

An Illinois case was settled in October 2023 for $70 million.

In January, the Securities and Exchange Commission announced it would review broker-dealers' process for VRDO rate-resetting as part of its 2026 examination priorities.