SMUD sues Wall St. firms over alleged bid rigging

Sacramento Bee ^ | 11/16/09

[FromLori]

The Sacramento Municipal Utility District sued Goldman Sachs, Morgan Stanley and 45 other financial firms Thursday in Sacramento federal court for allegedly rigging bids in bond-derivatives markets and defrauding the utility.

SMUD joined at least six city and county governments in California that already have filed similar lawsuits arising from a federal investigation made public in 2006. Many other public entities around the country have joined in lawsuits seeking class-action status.

The SMUD filing is the first to name Goldman Sachs as a defendant, according to lawyers working with the utility.

The litigation deals with bond-related financial instruments often used by local and state governments and other public entities when financing projects such as power plants. After money is raised through a bond sale, but before it is spent on a project, it is often invested in municipal derivatives to earn a return. Another type of derivative is used to help public entities hedge against shifts in interest rates on variable-rate bonds. In both cases, competitive bidding is supposed to ensure the best possible return.

SMUD's suit – like those filed elsewhere – alleges that brokers, banks and insurance companies agreed to fix bids on municipal derivative contracts so public entities received lower rates of return than they would have in a truly competitive market.

"These are very

[1010RD]

Any port in a storm.

[no-s]

I think this is good. It's a well-known but completely glossed over reality that most such offerings are well, insider deals. For years the connected have routinely skimmed the taxpayers. Even at the state level. But should fraud, collusion, or bid-rigging be proved, state law provides for the opportunity to renege, fines, and jail time for the parties involved.

If the state of California is going to unwind, all of the "bezzle" will have to fall. It will start small and work up.