FOR IMMEDIATE RELEASE: Wednesday, July 23, 2008
Stockton Files Lawsuits Against Bond Insurers & Financial Institutions
(Stockton, CA) – City Attorney Ren Nosky announced today that the City of Stockton has filed two lawsuits to stop bond insurers and financial institutions from siphoning millions of taxpayer dollars. Similar lawsuits were filed by the City of Los Angeles.
In the First Complaint, the CITY OF STOCKTON V. AMBAC FINANCIAL GROUP INC., et al., Stockton alleges that when it issued bonds to finance public works, it had to purchase unnecessary insurance from bond insurance companies under a discriminatory credit rating system that charged Stockton and other public entities exorbitant premiums. As alleged in the complaint, “the situation, however, reached disaster levels when those same bond insurance companies, who took hundreds of millions of dollars in premiums from public entities, then insured hundreds of billions of dollars of subprime loans. The insurer Defendants never disclosed the extent of their exposure to the subprime market but rather represented to Stockton and other California public entities that the bond insurance they were selling would improve [Stockton’s] credit rating and lower the interest rates that [Stockton] would have to pay.” With the recent downgrading of their own credit ratings, the insurance companies are looking to public entities to make up the losses in the form of increased premiums and other costs.
The Second Complaint, CITY OF STOCKTON V. BANK OF AMERICA, N.A., et al., arises from the fact that when Stockton raises money by issuing bonds, it has been wrongly treated by the underwriters. The suit contends that the financial institutions that provide these investments conspired to allocate the market amongst them by rigging the bidding process used by Stockton and other public entities that are required to obtain the most competitive rates for their investments. These financial institutions have been under investigation by the United States Department of Justice and according to the complaint, “In February of 2007, Bank of America announced it had been accepted into the [DOJ] Antitrust Division’s Corporate Leniency Program in order to avoid criminal liability for its involvement in the conspiracy to manipulate the Municipal Derivative Market.” As a part of the DOJ Program, BOA will be granted immunity to disclose the scheme that has harmed investments by Stockton and California public entities in the hundreds of millions of dollars.
To prosecute these cases, the City of Stockton engaged two law firms - the Stockton firm of Parish & Small - and Cotchett, Pitre & McCarthy with offices in the Bay Area, Los Angeles, Washington, and New York. Stockton attorney William H. Parish said, “We share a common purpose with the City Council and the City Attorney and that is to recover every cent taken from the taxpayers of this community.”
For additional information, please contact the Office of the City Attorney at (209) 937-8333.
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