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Baltimore files second class complaint against banks in federal court

Baltimore joined plaintiffs from around the country this week by filing a federal lawsuit in New York alleging a price-fixing conspiracy by banks that purchase and sell debt issued by Fannie Mae and Freddie Mac.

The city’s potential class-action suit is being consolidated with seven others, filed by pension funds, and alleges banks colluded to fix prices of bonds sold to investors between January 2009 and April 2014, according to the complaint, filed Monday. Baltimore paid almost $1 billion for bonds issued by the Federal National Mortgage Association (Fannie Mae) and Federal Home Loan Mortgage Corporation (Freddie Mac) during this period.

The lawsuit is the second in two weeks filed in New York by Baltimore accusing major banks — including, in both cases, Bank of America, Barclays and JP Morgan, among others — of price-fixing practices. Baltimore also filed a potential class action on March 25 claiming banks fixed interest rates of variable rate demand obligations.

Baltimore is joined by attorneys from Susman Godfrey LLP in New York in both cases.

“The Law Department continues to vigilantly safeguard City taxpayer interests,” City Solicitor Andre Davis said in a statement. “We pursue recoveries when we learn that large banks have colluded to increase prices on complex financial instruments, overcharging the City by millions of dollars.”

The latest lawsuit argues that financial instruments issued by Fannie Mae and Freddie Mac, called Fannie and Freddie bonds, or FFBs, are the subject of an investigation by the U.S. Department of Justice for price manipulation, which spurred the city to conduct an analysis that concluded the defendants engaged in a price-fixing conspiracy, according to a news release from the city about the lawsuit.

The alleged conspiracy inflated the prices of FFBs purchased by investors and deflated the prices of those sold. The defendant banks are “horizontal competitors” and controlled the supply of FFBs available to investors such as Baltimore on the primary and secondary markets.

Because FFBs are traded through a network of broker-dealers on the secondary market and not through a centralized and public forum, the “few knowledgeable and privileged dealers” were allegedly able to collude without scrutiny from investors, according to the news release.

The case is Mayor and City Council of Baltimore v. Bank of America et al., 1:19cv02900.

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