'Governmental entity' enters fray in Preston Hollow suit against Nuveen

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Preston Hollow Capital LLC is asking the court for guidance on a “governmental entity’s” request for the audio recordings of conversations between Nuveen Investments and Deutsche Bank that are now front and center in the private lender’s lawsuit against the investment powerhouse.

Transcripts of the recordings lay out how Nuveen late last year offered Deutsche Bank — PHC’s primary lender — and many other major banks and broker-dealers the same choice: drop any direct placement dealings with its rival or lose Nuveen’s tender-option bond and primary and secondary market trading business.

A confidentiality seal on the transcripts was lifted by the court June 28. Dallas-based PHC filed the lawsuit in late February in Delaware Chancery Court accusing Chicago-based Nuveen of defamation and antitrust violations under New York’s Donnelly Act.

In a letter filed with the court Wednesday, PHC’s attorney R. Judson Scaggs Jr., of Morris, Nichols, Arsht & Tunnell LLP, informs the judge of the governmental entity’s request and the need for guidance as lawyers are uncertain as to whether court approval is required.

Scaggs asked Delaware Chancery Court Vice Chancellor Sam Glasscock III, who is presiding over the case, to take up the issue at a scheduled hearing Thursday. The results of the hearing were not immediately available.

“A governmental entity (which has asked not to be identified in this letter), has reviewed the recently de-designated transcripts of the Nuveen/Deutsche Bank recordings. The entity has contacted Preston Hollow regarding the pending the litigation and asked for copies of the original audio files of the available telephone recordings,” Scaggs writes.

Nuveen filed its own letter to the judge Thursday ahead of the hearing. "Preston Hollow's letter to the court mischaracterizes our response and the origin of the query. We understand that Preston Hollow's counsel first contacted the government entity about this litigation, not the other way around. Moreover, Preston Hollow does not require Nuveen's consent to release the tapes. We have not received any request from a government entity on this case and continue to believe these allegations have no merit," said Nuveen spokesman Stewart Lewack. "We are filing a letter this morning with the court that has a more detailed response."

The letters do not disclose the name of the governmental entity or its specific interest in the material on the audio recordings between Nuveen officials and bank employees. The Securities and Exchange Commission regulates banks while the U.S. Justice Department and Federal Trade Commission enforce federal antitrust rules under the Sherman Act with only Justice able to bring criminal charges.

“As requested by the government entity, we sought consent from Nuveen to share the audio recordings produced by Deutsche Bank that were the subject of Preston Hollow’s prior motion to vacate the confidentiality designation, but Nuveen has not given consent,” the PHC Scaggs letter continues.

Nuveen asked PHC to inform the governmental entity that it would like to discuss the issue, but the entity did not express an interest in that contact, the PHC Scaggs letter reads.

“Instead, the governmental entity stated that it appeared a request to the court for permission to share the original audio would be ‘most expedient,’ ” continues the PHC Scaggs letter.

PHC reports to the court that it’s unclear as to whether Nuveen must consent or court approval is needed to forward the audio recordings with the confidentiality designation now lifted and redactions limited mostly to employee names.

“Nevertheless, for the sake of clarity and out of prudence, Preston Hollow will respectfully request that, during the hearing tomorrow, the court address whether Preston Hollow is allowed to share the original audio files of the Deutsche Bank telephone recordings, and any other recordings that may be de-designated in this proceeding, with (and only with) the interested governmental entity,” the Scaggs letter continues.

Nuveen attorney Peter J. Walsh Jr., of Potter Anderson & Corroon LLP, fired back in a letter Thursday to the judge accusing PHC of misleading the court on the governmental entity's entrance into the case.

"Preston Hollow’s letter contains a number of inaccurate statements regarding the involvement of that government entity with this litigation and Nuveen’s position on the release of the recordings to that entity," Walsh writes, saying he found the alleged misstatements troubling and wanted to "correct" the record.

Nuveen claims it was PHC that contacted the entity. "The truth, however, as Preston Hollow’s counsel confirmed in writing yesterday (the same day they submitted their letter), is that they were the first to advise the government entity about the litigation," the Nuveen letter reads. "Their omission of this fact was deeply misleading and, we believe, part of Preston Hollow’s consistent efforts to manipulate these proceedings."

Walsh also tells the judge that Nuveen indicated it was not comfortable communicating with a government entity through counsel to its adversary in litigation on any issue. "Nuveen made clear, however, that it was not withholding consent, and it would be happy to discuss the request directly with its source. Nuveen further requested that Preston Hollow provide the name of the supposed government contact or ask that the contact reach out to Nuveen directly. Notably, Preston Hollow has refused to disclose the identity of the purported government contact, and Nuveen has received no communication from any government entity regarding this matter," Walsh writes.

The transcripts come from conversations — recorded under regulatory mandate — that were obtained by Preston Hollow through subpoenas. The transcripts were originally sealed under a confidentiality designation that Preston Hollow successfully argued to lift.

On Wednesday, the transcripts of conversations between Nuveen officials, including Nuveen’s head of municipals John Miller, who spearheaded the efforts to pressure banks to shun Preston Hollow, and employees at Goldman Sachs and Morgan Stanley were released.

Goldman and Morgan Stanley did not immediately have a comment on the information in the transcripts, but a person familiar with Morgan Stanley said the transcript shows the firm "did not acquiesce and continues to do business with Preston Hollow."

PHC and Nuveen have also been asked for comment on the latest developments.


While Miller and members of his team put some banks and broker-dealers “in the box,” halting business with them, for working with PHC, it moved pre-emptively with Goldman informing the firm of its position. Miller and an unnamed employee discuss the entrance of hedge funds into the market in recent years and Miller’s growing frustration with PHC.

The Goldman employee reports that the firm hasn’t done any business with the lender and bankers don’t have a good relationship with the firm, but it appears one Goldman employee has ties to Preston Hollow’s co-head of originations Charlie Visconsi from their time together at Morgan Stanley where Visconsi was co-head of public finance from 2012 to 2017. A Nuveen employee calls Visconsi “trouble.”

“I need you on my team, you can't do any of this private [expletive] business with Preston Hollow,” Miller says in the first recording.

The Goldman employee is an easy sell. “Got it,” he responds, going on later in the recording to report that the firm has “not done anything with them. You know, my view has always been, to our bankers, that we — we need to offer it to our clients first.” The employee says the only instance he envisions where Goldman would work with PHC on a deal is if its high-yield clients took a pass.

Miller goes on the attack against PHC. “To my knowledge, everything that they do, they demand — they demand to be 100% private placement structure, just the way they want it, and they bring the issuers to the banker — or, well, to the underwriting firm, having already been sort of, quote/unquote, pre-banked,” Miller says.

Miller says he’s now looking a new way of picking counterparties.

“You have to choose who you want to do business with. Because I don't want to do business with those firms that do business with Preston Hollow,” Miller says. “In my 25-year career, I've actually never made this sort of a request of any dealer.”

“The Street just has to choose,” he says.

Miller accuses PHC in the conversation of “unethical practices that have caught the attention of the states' attorney generals, in some cases.”

The Goldman employee says he would push back on any PHC deals pitched by Goldman bankers by asking “don’t you think we will get better execution for the issuer” if they are publicly marketed.

A second recording discusses a meeting being set up to address potential concerns that Goldman bankers might raise questioning why they can’t do a deal originated on the private side if it’s going to drive revenue growth.


In one of a series of recordings, Nuveen’s senior vice president and manager of municipal fixed income trading Karen Davern warns Morgan Stanley that Nuveen put Bank of America Merrill Lynch “in the box” because they showed a high-yield deal only to PHC and in its defense BAML pointed to a deal Morgan Stanley was allegedly working on that would sell directly to PHC.

Davern tells the employee “you guys will not be doing business with us for high-yield effective today” if it moves forward on a PHC deal.

The Morgan Stanley employee goes on to say how Visconsi used to run Morgan Stanley’s banking shop and PHC’s need on some occasions to partner with a “large bank” in some “one-off situations” related to capital.

Davern warns that any work, no matter how limited, with PHC violates Nuveen’s position. “You've taken muni business that should be in the marketplace,” Davern says.

The Morgan Stanley employees counters that he or she works on the public side and doesn’t know what may be in the works on a private banking deal where Morgan Stanley capital is being committed. “I'm telling you, I — we are not sourcing deals and then going to them exclusively,” the employee says.

Davern warns such a position won’t fly with Miller. “We know what they're doing and we are taking a stand against it … because it's taking paper away from us. Do you see that?"

The two agree that Miller may need to speak to others at Morgan Stanley and the employee asks if Nuveen is imposing a uniform position across the Street. “Yes, it’s going to be uniform across the street,” Davern says.

As the employee continues to argue the difficulty of shunning any private side business, Davern responds: “I just don't want to keep going around on circles. You guys are on hold for high-yield and taxable business effective today.”


The Deutsche Bank transcripts of five recorded calls outline how Miller and other Nuveen employees allegedly pressured Deutsche Bank to pull its lending support. The bank resisted and ultimately refused despite Nuveen’s warnings and assurances that many major broker-dealers and banks involved in underwriting potential transactions for direct placement with PHC had committed to cut ties.

“I’ve got 90% of the major top bracket muni broker-dealer firms and banks to say absolutely never again and I’m working on 100%. I feel my chances are pretty good at getting there,” a Nuveen employee tells a Deutsche Bank employee during one conversation. While referred to only as “John,” the Nuveen employee appears to be Miller based on the conversation’s details.

“And, again, we — legally speaking — have to be very clear. We’re not telling anyone not to do business with them. We’re just saying that if we know that you do, we cannot do business with you. And that’s — that’s the conversation that’s being had with everyone,” another Nuveen employee tells a Deutsche Bank employee, according to the transcripts.

The transcripts provide a riveting view into Nuveen’s attempts to wield its power and its defense in pushing to blacklist Preston Hollow and Nuveen’s argument that it believes the private lender engages in predatory lending practices that will damage the high-yield market.

Nuveen’s successful maneuvers with broker-dealers and threats to its access to capital along with the alleged defamatory statements led Preston Hollow to file the lawsuit earlier this year.

Preston Hollow argued for the release of unredacted transcripts saying there was no legal reason to keep them from the public’s view. Many documents in the case are sealed as confidential. Nuveen opposed their release arguing such a move was not necessary in the case and that PHC was doing so only in an effort to embarrass the firm.

While Preston Hollow initiated the efforts, it still sought to keep alleged defamatory statements against itself under wraps.

Nuveen had fought against the public release, saying the effort was aimed solely at embarrassing the firm, but it also argued that if opened up, PHC should not be granted its requested redactions.

In addition to Deutsche Bank, Goldman and Morgan Stanley, a series of banks and more recently broker-dealer officials have been targeted with subpoenas including Piper Jaffray Co., Goldman Sachs, the Bank of America Corp., Citi, JPMorgan, Morgan Stanley & Co., RBC Capital Markets, Stifel and Wells Fargo.


The case pits Preston Hollow, which describes itself as a well-capitalized, nonbank finance company specializing in high-yield municipal specialty direct placement financings with more $1.8 billion in assets and $1.3 billion in equity capital, against a firm that is a top high-yield manager with $930 billion of assets under management including $154 billion in municipals.

Discovery and depositions have also been underway in the case as both sides prepare for trial. Additional bank and individual subpoenas have been filed over the last month as Preston Hollow learned of new information gathered from the original bank subpoenas.

While the case is headed toward a late July trial, the judge has made clear that he'd like the two sides to settle. Whether that can be accomplished or discussions on that front are underway was not clear.

Preston Hollow sued Nuveen on Feb. 28. It accused the firm and Miller and his staff of a concerted effort to damage its business through “threatening, anti-competitive and defamatory communications” to top broker-dealers and Preston Hollow’s primary lender.

Nuveen has responded in its defense that there’s nothing illegal about the tactics it is accused of using.

Glasscock previously dismissed one claim on tortious interference and allowed two others to move forward including one on tortious interference with prospective business relations and the other on a violation of the Donnelly Antitrust Act. He asked for an additional briefing before deciding on whether to allow the defamation claim to proceed.

The SEC and FTC declined to comment. The Justice Department did not respond.

Kyle Glazier contributed to this report.

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