Philadelphia sues seven major banks and invokes collusion with municipal bonds

NEW YORK (Reuters) – The city of Philadelphia has filed an antitrust lawsuit accusing seven major banks of conspiring to inflate interest rates for a type of bond used by cities. and other public bodies, potentially costing them billions of dollars.

In a lawsuit filed late Wednesday, Philadelphia charged Bank of America Corp., Barclays Plc, Citigroup Inc., Goldman Sachs Group Inc., JPMorgan Chase & Co, Royal Bank of Canada and Wells Fargo & Co's secret rate manipulation. VRDO known interest, or floating rate bonds.

Philadelphia, which said it issued more than $ 1.6 billion in bonds, said the banks had worked together to collect hundreds of millions of dollars in fees they did not earn, reducing critical funding public services such as hospitals, water and electricity supply, schools and transport. .

"The alleged misconduct of the defendants has potentially resulted in Philadelphia – and entities across the country – paying higher interest rates than the market for years," said city attorney Marcel Pratt.

Philadelphia also said the banks' behavior was the subject of a preliminary criminal investigation by the antitrust division of the US Department of Justice, while the US Securities and Exchange Commission had contacted four of the banks. The bond buyer reported the justice investigation in September, citing unnamed sources.

Bank of America, Citigroup, Goldman, JPMorgan, RBC and the SEC declined to comment on Thursday. Other banks and the Department of Justice did not respond to requests for comment. The complaint was filed in the US District Court in Manhattan.

VRDOs are long-term bonds that allow issuers to borrow at lower rates in the short term as they contain a put option.

This allows investors to prepay their bonds by submitting them to banks, such as the seven sued. Banks then notice the bonds from other investors and charge the issuers for their services.

According to the complaint, the banks secretly agreed in person, by telephone and electronically, not to compete for remarketing services from February 2008 to June 2016, when they controlled approximately 70% of VRDO remarketing.

Philadelphia said the banks had done so to keep the rates artificially high, prevent investors from exercising their put options and charge a "do nothing" fee.

The city is represented by Daniel Brockett, partner at Quinn Emanuel Urquhart & Sullivan, who has filed several lawsuits against banks against banks in the Manhattan court.

This court is host to a wide range of private litigation accusing banks of conspiring to rig various financial markets, benchmark interest rate indices and commodities.

These are the Philadelphia cases against Bank of America Corp. and others, US District Court, Southern District of New York, No. 19-01608.