The California attorney general has objected to dismissal on public disclosure grounds of a lawsuit alleging widespread fraud by major banks in the variable-rate market, which under state law prevents the court from dismissing the case on those grounds.
The office of Rob Bonta filed its objection to the dismissal with a California appellate court in San Francisco May 19. Under the California False Claims Act (CFCA), as under the similar laws in other states including New York, the attorney general may oppose dismissal on public disclosure grounds and automatically prevent the court from granting dismissal for that reason.
“The attorney general objects to dismissal of this action pursuant to the CFCA's public disclosure bar,” the filing states. “This notice should not be construed as indicating that the attorney general deems the public disclosure bar applicable in this action, or that the attorney general takes any position on the remaining issues in this action.”
At the heart of the accusations raised by the suit in California, as well as similar ones in New York, Illinois, and elsewhere, is the banks “bucketed” large groups of variable-rate demand obligations (VRDOs) and set their rates en masse, without regard to the characteristics of the securities, which the lawsuits argue is a violation of the remarketing agreements binding those banks. Those agreements generally commit remarketing agents to try their best to set the rates at the level necessary to market the bonds at par.
The higher rates cost VRDO issuers many millions of dollars, the lawsuits allege.
The banks accused in the whistleblower suits filed by Minnesota-based municipal advisor
The banks have argued that because the terms of the VRDOs were publicly available on the Municipal Securities Rulemaking Board’s EMMA site, the suit should be dismissed. Rosenberg’s attorneys have argued that his analysis of the rate resets went far beyond what is publicly disclosed.
The banks’ argument has been mostly unsuccessful outside of one dismissal in Massachusetts, and attorneys general have also objected to dismissal on public disclosure grounds in both New York and Illinois.
The stakes are highest in California, where the
The California lawsuit is fully briefed and the court must still consider the banks’ other arguments. It will likely be argued within the next couple of months.
Meanwhile, another Rosenberg case in New Jersey is also in a public disclosure showdown. A Superior Court judge in that state ruled late last year it would be “inappropriate for the court to rule” on the banks’ public disclosure argument until more facts were uncovered in the discovery phase, which is where that lawsuit now stands.
Rosenberg would reap a substantial windfall if any of his lawsuits result in money recovered for VRDO issuers. California’s law allows a whistleblower under the false claims act to be awarded up to 50% of the damages recovered.
