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Goldman (GS), Other Banks to Face Bond Collusion Claims

U.S. District Judge Jesse Furman in Manhattan trims federal lawsuit, allowing American cities to pursue class-action claims that allege eight large banks of driving up interest rates paid on a popular municipal bond. This was first reported by Reuters.

Particularly, cities led by Baltimore, San Diego and Philadelphia accused Bank of America, Barclays, Citigroup, Goldman Sachs GS, JPMorgan Chase JPM, Morgan Stanley MS, Royal Bank of Canada and Wells Fargo & Company WFC of colluding to raise interest rates on more than 12,000 variable-rate demand obligations (VRDOs) from 2008 to 2016.

VRDOs are long-term bonds with short-term rates that reset weekly. Banks remarket VRDOs that investors redeem at the least rates. The banks were accused of conspiring to artificially increase rates by sharing information about bond inventories and planned rate changes.

Resultantly, funding availability was reduced for hospitals, power and water supplies, schools and transportation, causing billions of dollars in damages.

The banks filed an opposing class certification, noting that differences among the bonds would require many individual examinations to determine if rate inflation occurred. This would make a single class-action lawsuit difficult.

But now, the U.S. district judge has rejected the banks’ certification to require cities to pursue claims individually, likely lowering probable recoveries.

"Of course, it remains an open question whether, assuming plaintiffs paid supra-competitive interest, that payment was caused by defendants' allegedly anti-competitive behavior," Furman noted.

Recently, a lawsuit was filed in the New York state court against Morgan Stanley by private equity firms Certares Management LLC and Knighthead Capital Management LLC. The firms claim that MS used deceptive practices in relation to a credit agreement investment for a luxury high-speed rail line.

The firms are seeking at least $750 million in damages from Morgan Stanley. Certares and Knighthead claim that MS illicitly restructured a deal by which they invested in a loan to Miami-based Brightline Holdings.

Wells Fargo’sagreement to pay $1 billion pursuant to the class action lawsuit related to overstating progress on resolving the 2016 fake account scandal was recently approved by the federal judge, per a Bloomberg article. The settlement was authorized after more than three months of the deal.

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