Lieff Cabraser Heimann & Bernstein, LLP

Introduction: Use of Municipal Derivatives

Designing and constructing capital projects often takes several years, resulting in a gap between when the bond funds are received and when the funds are all spent. It serves the public interest for governments to gain interest on bond monies.

Municipal derivatives are investment vehicles that allow a municipal bond issuer to generate a higher rate of return from bond proceeds than would be obtained if the bond funds were placed in a traditional savings account.  A Guaranteed Investment Contract is one type of municipal derivative product.

Government Investigations Into Municipal Derivatives

The United States Department of Justice's Antitrust Division, the Internal Revenue Service, and the Securities & Exchange Commission are conducting multi-year investigations into the municipal derivatives industry. As part of those investigations, Bank of America Corp. has announced that it received conditional acceptance into the Antitrust Division's corporate amnesty program, admitting its participation in illegal practices.

On October 29, 2009, a federal grand jury charged CDR Financial Products Inc. and executives at the company with participating in fraud and bid-rigging conspiracies related to guaranteed investment contracts.

In a nine-count indictment filed in a New York federal court, U.S. Department of Justice prosecutors allege that company executives secretly manipulated the bidding process by designating in advance who would be the winning bidder for certain investment agreements. The department also charged that CDR took kickbacks from bidders, asked certain bidders to submit intentionally losing bids, and provided co-conspirators with information on the bids of competitors.

The Department of Justice has subsequently announced additional indictments and guilty pleas in connection with its investigation into the municipal derivatives industry.

California municipalities file lawsuit

On April 23, 2008, the City of Oakland filed a federal antitrust lawsuit against national financial firms including AIG Financial Products, Bank of America, JPMorgan Chase, and Wachovia Bank. 

The County of Alameda, City of Fresno, and Fresno County Financing Authority have also filed cases alleging anti-competitive conduct in the sale of municipal derivatives. Lieff Cabraser serves as co-counsel to these municipalities in their cases. Click here to read their joint complaint. The complaint alleges in detail how financial companies and brokers agreed among themselves to give cities artificially low bids for guaranteed investment contracts, swaps, and other municipal derivatives products, which cities, counties, school districts and other public entities use to earn interest on bond proceeds. By conspiring to avoid competitive bidding, financial companies were able to give cities anticompetitive low interest rates, depriving taxpayers of the market rate of return.

Case Status

Lieff Cabraser has aggressively advanced its clients' litigation since filing. 

The Judicial Panel on Multidistrict Litigation transferred all related cases to the United States District Court for the Southern District of New York and assigned them to the Honorable Victor Marrero. Read Judge Marrero's case management order.

On April 26, 2010, Judge Marrero denied defendants' motions to dismiss Lieff Cabraser’s clients’ cases. Read the Court's order. Discovery, although limited by a partial stay requested by the Department of Justice, is proceeding.

Contact Plaintiffs' Counsel

Please feel free to contact an attorney at Lieff Cabraser concerning this litigation. We welcome inquires from public entities nationwide. Across the country, cities, counties, school districts and other public entities have been overcharged in the tens of millions of dollars, if not more.