WASHINGTON — A federal judge in Manhattan has refused to dismiss class action claims filed by local governments alleging that Wells Fargo & Co. and 15 other banks, broker-dealers and investment brokers conspired to rig bids and fix prices of guaranteed investment and derivatives contracts in the municipal market.
Judge Victor Marrero, of the U.S. District Court for the Southern District of New York, denied the firms’ motion for dismissal in a 57-page order issued Thursday and ordered the parties to appear at a pretrial conference on April 30.
Hinds County, Miss., and other municipal issuers had initially filed the class action suit against more than 40 firms on Aug. 22, 2008. Most of the defendants in the suit filed a motion to dismiss the suit, claiming the issuers failed to make specific allegations of involvement in the conspiracy. Marrero dismissed the suit on April 29, 2009, but agreed to allow the local governments to replead their case.
The issuers filed a second consolidated class action suit against 16 of the firms on June 18, 2009, this time including more specific information obtained from an unidentified confidential witness at Bank of America, now Bank of America Merrill Lynch. The bank has been cooperating with the plaintiffs in the suits and with the Justice Department’s criminal investigation of these matters in return for indemnity against criminal charges. The suit also contained allegations from the Internal Revenue Service and other investigations.
All but one of the defendant firms moved to dismiss the second suit. They claimed the issuers failed to state an antitrust conspiracy claim, that the issuers’ claims were time-barred, and that Internal Revenue Code and Treasury regulations precluded the antitrust claims.
But Marrero refused to dismiss the suit, saying that the allegations “support a plausible inference” that each of the remaining defendants “participated in the alleged conspiracy.” The judge also said the second suit “cures the deficiencies” of the first one and “pleads fraudulent concealment with sufficient particularity.”
In rulings in previous cases, courts have found that the statute of limitations for antitrust violations are “tolled” or halted if the plaintiff “can show fraudulent concealment,” Marrero said.
In addition, the judge said IRS regulatory enforcement “does not result in remedies for the underlying conduct alleged here ... collusive bidding or price fixing.” As a result he said, “IRS regulations do not implicitly preclude private enforcement.”
The plaintiff issuers in this suit, in addition to Hinds County, include Baltimore, the University of Mississippi Medical Center, the University of Southern Mississippi, the Mississippi Department of Transportation, the University of Mississippi, the Bucks County Water & Sewer Authority, the Central Bucks School District.
The defendants, besides Wells Fargo, include: Bank of America, Bear Stearns & Co., JPMorgan Chase & Co., Morgan Stanley, National Westminster Bank PLC, Piper Jaffray & Co., Societe Generale SA, UBS AG, Wachovia NA, Natixis SA, Investment Management Advisory Group Inc., CDR Financial Products, Winters & Co., George K. Baum & Co., and Sound Capital Management Inc.
Marrero’s ruling comes as Los Angeles and 13 other local governments in California that filed 11 separate suits against Wells Fargo and more than 40 other firms are set to file their opposition tomorrow against the firms’ motion to dismiss the suits. Technically all of the suits — the ones by Hinds County, Miss., and other governments, and the ones by the California localities — have all been consolidated.
But the California localities’ suits currently are being treated separately because they were filed beginning in July 2008 in California state courts and were later transferred to the court in Manhattan.