Philadelphia Sues Seven Big Banks, Alleges Secret Collusion Costing City Billions

The city of Philadelphia has filed an antitrust lawsuit against seven major banks for conspiring to inflate interest rates for municipal bonds potentially costing the city billions of dollars.

The complaint filed on Wednesday, accuses Bank of America Corp, Barclays Plc, Citigroup Inc, Goldman Sachs Group Inc, JPMorgan Chase & Co, Royal Bank of Canada and Wells Fargo & Co of manipulating rates for tax-exempt bonds known as variable-rate demand obligations, or VRDOs.

Philadelphia says banks colluded to collect hundreds of millions of dollars in unearned fees, reducing funding for public services. The city says it issued more than $1.6 billion of the bonds.

“The alleged misconduct of the defendants potentially resulted in Philadelphia – and entities across this country -paying above-market interest rates for years,” City Solicitor Marcel Pratt said.

The banks’ conduct is the subject of a criminal probe by the US Department of Justice. The Bond Buyer reported the Justice probe in September, citing unnamed sources.

According to the complaint, the banks secretly agreed not to compete with each other for services from 2008 to 2016, while controlling about 70 percent of VRDO remarketing. Philadelphia said the banks did this to artificially maintain high rates and ensure bond holders would not exercise their put options, while collecting fees “for doing, essentially, nothing.”

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