Price-Fixing In Guaranteed
Investment Contracts
Introduction: Use of Guaranteed Investment Contracts
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.
Guaranteed Investment Contracts are a safe means 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.
Grand Jury Indicts CDR Financial
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.
Three guilty please have arisen from this ongoing investigation into the municipal bonds industry. In February and March of 2010, former CDR employees Daniel Moshe Naeh, Matthew Adam Rothman and Douglas Alan Goldberg pleaded guilty to conspiring to rig bidding on investment contracts sold to local governments and agreed to cooperate with the U.S. Justice Department and their investigation. The trial for CDR is scheduled to begin on February 7, 2011.
City of Fresno Lawsuit Filed
On July 17, 2008, the City of Fresno, California, filed a class action
lawsuit in federal court alleging that several of Wall Street's biggest
firms engaged in bid-rigging. The defendants include AIG Financial Products,
Bank of America, Bear Stearns, JPMorgan Chase, Lehman Brothers Inc., Merrill
Lynch & Co., Morgan Stanley and Wachovia Bank.
Representing an expansion of nationwide antitrust litigation against major investment banks, the complaint charges that the investment banks conspired to give cities artificially low bids for Guaranteed Investment Contracts (GICs), swaps, and other reinvestments.
City of Oakland Guaranteed Investment Contract 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. Click here to read the complaint. Lieff Cabraser serves as co-counsel for the City of Oakland.
The forty-two page 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 financial 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.
Oakland purchased hundreds of millions of dollars worth of Guaranteed Investment Contracts from defendants named in the suit. Estimated damages to the City of Oakland are in the hundreds of thousands of dollars.
City of Oakland Case Proposed Class
The City of Oakland seeks to represent all state, local or municipal Government Entities in the United States or its territories that purchased guaranteed investment contracts and other financial instruments from defendants at any time from January 1, 1992 through the Present. Excluded from the Class are all federal governmental entities and instrumentalities of the federal government.
Case Status
Lieff Cabraser aggressively advanced the City of Oakland litigation since filing. The complaint has been served all 37 defendants, including all non-U.S. defendants and is proceeding.
The parties have entered in a stipulation for defendants’ time to respond to the complaint, which contains discovery, production requirements, and deadlines favorable to Oakland. On behalf of Oakland, Lieff Cabraser intervened in related litigation in the District of Columbia to prevent other counsel from obtaining appointment as lead-counsel to the exclusion of other cases.
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 Marerro. Read Judge Marrero's case management order.
On March 25, 2010, Judge Marerro denied defendants' motions to dismiss the case. Read the Court's order.
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.
About Lieff Cabraser
Lieff Cabraser Heimann & Bernstein, LLP is a sixty-plus
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litigated antitrust claims against Microsoft Corporation for monopolistic
practices, and achieved record recoveries against El Paso Gas Co. and wholesale
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