Baltimore is one of several government and union plaintiffs that stands to recoup damages sustained in a proposed $337 million settlement of a class-action lawsuit accusing major financial institutions of a price-fixing conspiracy.
The city filed a lawsuit earlier this year in U.S. District Court in New York alleging banks that purchase and sell debt issued by Fannie Mae and Freddie Mac colluded to fix prices of bonds sold to investors between January 2009 and April 2014. The case was consolidated with others and Pennsylvania’s Treasury Department was named the lead plaintiff.
On Tuesday, Pennsylvania Treasurer Joe Torsella announced proposed settlements with 13 banks, including Citigroup, JP Morgan, Merrill Lynch and Morgan Stanley. The combined $337 million would settle claims, though Torsella estimated class-wide damages exceeded $850 million.
The plaintiffs previously settled with Deutsche Bank, First Tennessee Bank, Goldman Sachs and Barclays, bringing the combined recovery to more than $385 million. The 16 plaintiffs controlled around 77% of the market for bonds issued by government-controlled companies, called GSE bonds.
The settlement will also require the defendant banks to establish an antitrust compliance program.
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 the period covered by the lawsuit. The city conducted its own investigation after learning the U.S. Department of Justice was scrutinizing the bonds for price manipulation.
City Solicitor Andre M. Davis did not respond to a request for comment Tuesday.
GSE bonds are a cornerstone for the investment portfolios of government and institutional investors, according to Torsella’s office. One of the alleged co-conspirators cooperated with federal investigators and provided evidence of the price-fixing, including online chats.
In the discussions, the traders appeared to agree to fix bond prices at artificially inflated prices, cheating buyers of the bonds. The price-fixing began in 2009 and lasted through 2015 and violated federal anti-trust law, court filings said.
In one online chat from 2012, a Deutsche Bank trader asked: “where are we going out on these bonds? 99.90? just want to make sure everyone’s cool w/ that …” A Cantor Fitzgerald trader responds, “Yes, 99.90” and a BNP Paribas trader says, “99.90 on everything.”
Torsella called the evidence in the case “particularly damning.”
“The brazen attitude exhibited by Wall Street traders toward public institutional buyers of GSE bonds was shocking,” he said in a statement.
The Associated Press contributed to this report.