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Eight major banks must face cities' accusations of bond collaboration



(Reuters) – A federal judge on Monday said Philadelphia and Baltimore could sue eight major banks for alleged conspiracies to force state and local governments to pay inflated interest on a popular type of tax-exempt municipal bond.

U.S. District Judge Jesse Furman in Manhattan said cities could pursue antitrust claims in the proposed class action lawsuit over banks' marketing of variable interest rates, once at more than $ 400 billion, from 2008 to 2016.

collaboration reduced funding for hospitals, power and water supply, schools, transport and other important municipal services.

The defendants include subsidiaries of Bank of America Corp., Barclays PLC, Citigroup Inc., Goldman Sachs Group Inc., JPMorgan Chase & Co., Morgan Stanley, Royal Bank of Canada and Wells Fargo & Co.

VRDOs are short-term short-term bonds that are usually repaid weekly. Investors can redeem the bonds early and the banks must re-mark these bonds to other investors at the lowest possible interest rate.

Philadelphia and Baltimore, which issued $ 1

.67 billion and $ 261 million, respectively, from VRDO, accused banks of sharing their own information about bond stocks and planned interest rate changes.

They said this discouraged redemption and allowed banks to charge hundreds of millions of dollars in remarketing and service fees to "effectively do nothing."

In his 34-page decision, Judge Furman stated that the cities offered "reason to believe that the defendant stood to gain by participating in the interest rate fixing system and that the system was only possible with the defendant's concerted efforts."

Judge Furman also said that six banks must face breaches of contract claims. . He rejected all allegations of unfair enrichment.

Banks declined to comment or had no immediate comment.

Diana Cortes, a lawyer for the City of Philadelphia Law Department, said the plaintiffs were satisfied that Judge Furman maintained his "core" antitrust and contract claims.

The VRDO market exceeded $ 400 billion in 2009 but has shrunk. S&P Global Ratings recently ranked $ 144.9 billion in securities.

The case is Philadelphia et al against Bank of America Corp et al, U.S. District Court, Southern District of New York, No. 19-01608.

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