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Municipal Derivatives

Related Lawyers: Megan E. Jones
Related Practice Areas: Antitrust / Competition

MDL 1950, S.D.N.Y. - Hausfeld was appointed co-lead counsel in this nationwide class action lawsuit against banks, insurance companies, and brokers alleging widespread price-fixing and bid rigging in the multi-billion dollar municipal derivatives industry dating back to 1992.

The proposed class was represented by Hausfeld and other co-lead counsel. Settlements in excess of $120 million were obtained and approved on behalf of the proposed class from five defendants.

The plaintiffs were state, local, and municipal governments and their agencies, as well as private entities, that purchased municipal derivatives from or through any of the following defendants: AIG Financial Products Corp.; AIG SunAmerica Life Assurance Co.; GE Funding Capital Market Services, Inc.; Genworth Financial Inc.; JP Morgan Chase & Co.; Bear, Stearns & Co., Inc.; Société Générale SA; UBS AG; Lehman Brothers Inc.; Merrill Lynch & Co. Inc.; Morgan Stanley; Wachovia bank N.A.; Natixis S.A.; Financial Security Assurance Holdings, Ltd.; Financial Guaranty Insurance Company; Trinity Funding Co. LLC; Piper Jaffray & Co.; Security Capital Assurance Inc.; XL Asset Funding Compnay LLC; XL Life Insurance & Annuity, Inc.; National Westminster Bank plc; or Bank of America N.A.

Municipals derivatives are used to invest the proceeds of municipal bonds. Because municipal bonds commonly fund multi-year public works projects, most of their proceeds cannot be spent immediately, and must be invested to earn interest until they are ripe for use. These investment vehicles are known as municipal derivatives, an umbrella term that refers to various tax-exempt vehicles, including guaranteed investment contracts, advance refunding escrows, swaps, toptions, swaptions, collars, and floors. As a result of this conspiracy, the plaintiffs and other class members were deprived of extra money they otherwise would have received from their municipal bond investments and could have spent on important public works projects such as roads, buildings, and mass transit.

The lawsuits came on the heels of an investigation by the United States Department of Justice's Antitrust Division, the Internal Revenue Service, the Securities and Exchange Commission, and certain State Attorney Generals into industry-wide collusive practices in the two-hundred year old municipal bond industry. The lawsuits also followed Bank of America's conditional acceptance into the Antitrust Division's amnesty program, in connection with which there was disclosure of information regarding the conspiracy described below and the promise to provide full and complete cooperation to the Antitrust Division, the plaintiffs, and the class they sought to represent.

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