In a recent filing in In re Municipal Derivatives Antitrust Litigation seeking preliminary approval of a settlement, six investment banks, including UBS AG, Societe Generale SA and Natixis Funding Corp., agreed to pay more than $100 million to settle private class action claims they fixed prices and rigged bids for municipal derivatives, signaling a potential end to multidistrict litigation in the area. The settlement would end nearly eight years of litigation that have resulted in more than $226 million in payouts from 11 Defendants, including Morgan Stanley and JPMorgan Chase.
The litigation dates back to March 2008, when municipalities and public entities, including the City of Baltimore and the Central Bucks School District in Pennsylvania, filed suit against 37 financial institutions, alleging that they stifled competition or gave a false appearance of competition within the municipal derivatives market as far back as 1992. Municipal derivatives are used to help public entities invest and manage the proceeds of municipal bond sales, which are earmarked for specific and often multiyear projects, such as building or maintaining roads or mass transportation systems. They are also used to contain the risks of interest rate swings.
Municipalities that sell bonds hire banks and brokers to seek out competitive bids and typically invest proceeds elsewhere that they do not need to spend immediately. Specifically, the Defendants were accused of abusing the process by getting advance peeks at their rivals’ bids, or purposely submitting non-winning bids. As a result of the alleged collusion, municipal issuers paid more than they should have or were deprived of proceeds they would have otherwise gotten from their investments, according to the suits.
The first settlement out of the multidistrict litigation was announced in August 2010, when Morgan Stanley agreed to pay $6.5 million to escape claims against it. Wells Fargo Bank NA followed suit in October 2011, agreeing to pay $37 million on behalf of Wachovia Bank NA, which it acquired during the financial crisis. A third settlement was hatched April 2012, when J.P. Morgan Securities LLC agreed to pay nearly $44.6 million to settle claims against it.
Further settlements with GE Funding Capital Market Services Inc., for $18.25 million, and Bank of America NA, for $20 million, were announced in 2013. Under the current proposed settlement, UBS will pay the largest portion, at $32 million, followed by Natixis, which has agreed to shell out more than $28.4 million. Societe Generale will pay $25.4 million. Other settling firms include Piper Jaffray & Co., National Westminster Bank PLC and George K. Baum & Co., which agreed to pay amounts ranging from $1.4 million to $9.75 million.
In addition to the class action settlement, Natixis and Societe Generale have agreed to pay $1.5 million and more than $1.3 million, respectively, to settle claims brought by Attorneys General from New York, Connecticut and other states. The larger class action settlements were coordinated with the Attorneys General litigation brought on behalf of the states.
Sources: Law360.com and Reuters
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