A group of 11 California issuers are charging that an affiliate of Goldman Sachs & Co., J Aron & Co., is pressuring a member of the group to remove Goldman as a defendant in its civil suit charging that 36 Wall Street and other firms participated in a vast bid-rigging conspiracy for municipal swaps and investment agreements.
In a filing with the U.S. District Court for the Southern District of New York, the group of California entities last week charged that J. Aron has halted its commodity trading business with the Sacramento Municipal Utility District at the direction of “senior legal people” at Goldman, until the litigation “gets sorted out.”
Citing a January conversation between Dennis Holcomb, a principal energy trading specialist at SMUD and a J. Aron official, the California entities said: “It is clear from the statements of the representative of the Goldman affiliate, J. Aron, that the order not to do business with SMUD was intended to place pressure on SMUD to abandon its claim in the instant action against Goldman.”
The claim came in a motion filed jointly by the group of issuers that have individually sued Goldman and other firms.
Goldman fired back Friday, saying in a separate filing that it would not abide by the issuers’ “grossly unfair and irresponsible mischaracterization.”
“The representative merely communicated to SMUD the firm’s position that in light of the lawsuit instituted by SMUD and the serious nature of its allegations, the firm did not consider it appropriate to engage in certain commercial dealings with SMUD at present,” wrote Evan Davis and Victor Hou, attorneys at Cleary Gottlieb Steen & Hamilton LLP, which is representing Goldman and its affiliates in the suits.
“Despite the public entity plaintiffs’ attempt to twist the benign conversation into a purported attempt at intimidating SMUD to withdraw its claims, the transcript itself makes clear that the J. Aron representative did no such thing, nor anything else improper.”
The legal dispute emerges as the Justice Department is urging the court to delay civil discovery of tape recordings and transcripts of conversations of employees at banks, broker-dealers and investment firms in the case until April 2011, arguing that such discovery could interfere with its criminal proceedings.
A previous stay expired on March 25 when Judge Victor Marrero refused to dismiss a class action suit filed by several East Coast states and localities — including Hinds County, Miss., and Baltimore — against 16 firms.
But issuers are responding that there is no legitimate basis to grant another delay barring them from pursuing their civil cases. They contend that the bid-rigging conspiracy cheated taxpayers and ratepayers out of “millions if not billions of dollars” that is sorely needed now by municipalities to plug budget shortfalls.
The issuers also argue that there is little overlap with their discovery requests and the government’s case, which so far has only led to an indictment of one firm, CDR Financial Products Inc., its founder David Rubin, its former chief financial officer Stuart “Zevi” Wolmark, and vice president Evan Andrew Zarefsky.
During a status conference Friday on the CDR case, Marrero, who is also overseeing the criminal matter, agreed to move the trial date against CDR and the three defendants to Sept. 12, 2011.
The trial was originally scheduled to begin in February, but defendants argued that there was insufficient time for them to prepare.
Since Marrero in March rejected a motion to dismiss the class action suit brought by the East Coast issuers, Marrero has subsequently refused to dismiss two other groups of lawsuits that have been consolidated in his court, consisting of several California issuers. The larger group includes SMUD, Los Angeles, and nine other issuers as plaintiffs, while a smaller group includes Oakland, Fresno, the Fresno County Financing Authority, and Alameda County.
In refusing to dismiss the larger California group’s suits last month, Marrero refused to throw out Goldman as a defendant. However, he said there either was not yet plausible evidence to link other firms — such as AIG Financial Products Inc. and a group of related firms referred to as “GE Trinity” — to the alleged conspiracy, or that some of the firms’ bids for guaranteed investment contracts fell outside a range cited by a former Internal Revenue Service official as a means of detecting sham or collusive bidding for the contracts.
