CHICAGO - The lawyer behind six yield-burning cases filed on behalf of taxpayers and a handful of Illinois issuers will appeal to the state Supreme Court a lower court judge's dismissal this week of the cases against UBS Financial Services and Bear, Stearns & Co. for their respective work on an Illinois deal and a Cook County transaction.
After hearing arguments yesterday, Cook County Circuit Court Judge Stephen Schiller granted the defendants' motion to dismiss the cases. He agreed with their contention that in the UBS case only the state attorney general can represent the state and taxpayers, while in the Bear Stearns case only the Cook County state's attorney has that authority.
Because the cases were brought by taxpayers under the state's Whistleblower's Act, Schiller's action effectively declares the statute unconstitutional -- a decision that allows attorney Clint Krislov, who filed the lawsuits, to appeal directly to the state Supreme Court.
The cases alleged that UBS Financial Services and Bear Stearns overcharged the state and county, respectively, in connection with U.S. Treasuries that were purchased to establish escrows on advance refunding transactions conducted during the early 1990s.
Krislov responded to the loss with stinging remarks aimed largely at Cook County, whose own attorneys presented arguments in the case. In the other case, UBS attorneys delivered the key arguments, with the state attorney general opting to remain on the sidelines.
"The only common enemy that binds together the government and wrongdoers is the taxpayer trying to protect the public," Krislov said after the hearing. "Cook County was the only place where the government came out against the taxpayers repeatedly on the case."
The potential for some monetary settlement was not enough to override the county's concerns that the case, if left unchallenged, could result in a ruling that would usurp its legal powers, according to assistant Cook County state's attorney Paul Castiglione. "There's a constitutional principle involved here. Only we have the authority to represent the county's legal affairs," he said. "We think it's an important principle."
The setback in the cases came less than two weeks after Krislov's first major victory in the series of lawsuits he began filing in 1999 following a probe initiated by his law firm of advance refundings done during the early 1990s. Wachovia Securities, successor to Kemper Securities, agreed to settle the lawsuit filed against the firm in connection with its role in a $48 million Chicago advance refunding.That case, which also alleged that Prudential engaged in yield burning on another Chicago deal, was the first filed by Krislov.
Wachovia agreed to pay $250,000 under the settlement. The city will receive $140,000, Krislov will get $95,000, and the remainder will go to the three taxpayers whose names appear on the lawsuit. Kemper was charged in the lawsuit with overcharging the city by $222,000. Krislov originally offered to settle the cases for twice the amount of the alleged burn.
Due to a confidentiality agreement, the only statement provided by the city or Krislov was included in the settlement agreement. "We are pleased that the matter has been resolved satisfactorily. We hope to reach similarly acceptable settlements with the other underwriters on similar outstanding claims for other governmental entities," the statement read.
Krislov is in settlement talks with several underwriters named in the lawsuits. In addition to the two Chicago deals that are part of one lawsuit -- the Illinois transaction and the Cook County deal -- three others remain outstanding.
One alleges that William Blair & Co. engaged in yield burning on a DuPage County deal. Another accuses Banc One Capital Markets Inc. of overcharging the LaGrange Park Public Library District. A final case alleges that Morgan Stanley overcharged the Illinois Health Facilities Authority on its purchase of open-market Treasuries.
The decision handed down by Schiller stands to impact only the DuPage deal. The lawyers that represent cities, authorities, and other government bodies tend to be employees, so they are not afforded the same constitutional rights provided to the elected posts of attorney general and state's attorney.
Though the Whistleblowers' Act provides taxpayers with the ability to bring lawsuits, Schiller agreed with the defendants' attorneys that state Supreme Court rulings on a separate statute give the state attorney general sole authority to act in civil litigation on behalf of taxpayers when the state is the injured party.
"The state is only to be represented by the attorney general and the people of Illinois are only to be represented by the attorney general," Steven Molo, a Winston & Strawn attorney who represents UBS, said of the state constitution.
Castiglione successfully argued that other legal precedent gives the elected legal officers of the state's counties similar authority. Schiller was less firm on his finding that the county held the same authority, but he said sending both to the state's high court would give the "court the opportunity to differentiate between the county and state."
Whatever action Illinois Supreme Court justices take stands to set new precedent regarding the Whisteblowers' law.
