Court Grants Favorable Ruling to County of San Mateo; Lawsuit against financial institutions can proceed

[See also a prior Montara Fog report, “Lehman collapse still angers local officials.”]

PRESS RELEASE

REDWOOD CITY, Calif. – A New York Federal Court ruled today that the County of San Mateo can proceed in a lawsuit that accuses some of the largest investment banks in the nation of scheming to defraud the County out of millions of dollars.

San Mateo County’s lawsuit charges that Goldman Sachs, Citibank, JPMorgan Chase, Morgan Stanley, UBS, Wells Fargo/Wachovia and other institutions conspired to pay below-market interest rates on government investments.

In a 42‑page opinion signed on April 26, 2010, Judge Victor Marrero of the U.S. District Court for the Southern District of New York found that San Mateo County’s complaints allege sufficient facts suggesting that the defendants’ worked together to rig bids and shared illegal gains through kickbacks to one another.

“We’re are very pleased with this decision. These companies manipulated local governments out of public tax dollars, and we look forward to our day in court,” said San Mateo County Board of Supervisors President Richard S. Gordon.

San Mateo County’s case centers on investments known as Guaranteed Investment Contracts and similar investment contracts. These contracts are used by cities, counties and municipalities across the United States to invest public monies after a bond is issued. The contracts typically guarantee a fixed return, which raises additional revenue before the money is used for public purposes such as building schools, hospitals and other public buildings.

County officials estimate local taxpayers would have saved millions of dollars over at least the past 10 years in fees paid to investment banks and in lower interest rates if the bids were truly competitive.

San Mateo County did not lose money on the investments. The complaint alleges the defendants worked in concert to manipulate the market for the contracts to pay below-market rates. For instance, the defendants would submit bids to handle investment contracts that were intentionally designed to lose in order to steer business to certain investment banks, then were paid kickbacks.

The financial institutions that are alleged to have involved in this price‑fixing scheme include many of the same financial institutions that were involved in precipitating the recent global financial crisis.

According to Nanci E. Nishimura, one of the lawyers representing these public entities, “While California cities and counties struggle to balance their budget as a result of a financial crisis caused by the excessive greed and risk‑taking of Wall Street banks, those same firms conspired to cheat these cities and counties out of hundreds of millions of dollars of public funds.”

The cases will now go into a formal discovery stage before a trial (more details about the legal procedure at http://sideeffectsofxarelto.org/the-first-lawsuit-moves-forward/).

The lawsuit filed on behalf of San Mateo County was filed by Joseph W. Cotchett and Nanci E. Nishimura of Cotchett, Pitre & McCarthy of Burlingame.

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