Nuveen’s influence as an investment titan and whether that power enabled it to damage Preston Hollow Capital LLC’s business with banks and broker-dealers was debated during the second day of a two-day trial in the private lender’s antitrust lawsuit.
Nuveen officials worked to recast what PHC believes are illegal tactics to damage its direct placement business as simple reminders to banks and broker-dealers of their wish to be among the first to see deals and the municipal team had been directed to stand down on any mention of the private lender with banks, according to published reports of trial room coverage from Bloomberg and Law360.
Preston Hollow believed the directive to be disingenuous and insufficient to undo the damage already done as banks had begun to shun work with the lender. PHC officials asked the court to order Nuveen to halt what it contends are antitrust violations of New York’s Donnelly Act and alleged illegal efforts to interfere with its business. PHC witnesses also told the court the alleged tactics pose a wider harm to the municipal market in general.
The non-jury trial before Delaware Chancery Court Vice Chancellor Sam Glasscock III is over, but post-trial briefs will follow in August under a schedule to be worked out by the both sides, so no ruling is expected until later in the summer.
“Over the years, they’ve just done what they want,’’ PHC founder and chief executive officer Jim Thompson told the court, according to the Bloomberg story. “We’re here asking the court to stop it.’’
“What we are seeing here is an accumulation of a lot of power over a long period of time and insufficient fetters, whether internal or external, on that power,” Law360 quoted Thompson as saying. “They’ve just done whatever they want. My experience with that is, it keeps going on until something or somebody stops it, and we’re here asking to stop it.”
Thompson said during testimony that Nuveen’s behavior was not something he recognized as normal for the industry, according to the published reports.
In transcripts of audio recordings between Nuveen and banking and broker-dealer employees subpoenaed by PHC, Nuveen’s manager of fixed-income trading Karen Davern warned banks that the firm wouldn’t do business with counter-parties that did 100% direct placement deals with PHC.
On the stand Tuesday, Davern sought to recast those conversations as reminders to banks that Nuveen expected to be notified of any new deals saying the calls “were always about the deal,” according to Law360.
Davern’s testimony followed head of municipals John Miller’s Monday testimony that his efforts to persuade banks to shun PHC were exaggerated to get the bank’s attention in alerting Nuveen to deals.
Miller, on the calls, defends his position arguing that PHC engages in predatory lending practices and overcharges borrowers. PHC contends the firm was seeking to protect its share of a scarce market product — higher-yielding paper — through illegal tactics.
Nuveen directed its municipal team to “stop talking about Preston Hollow,” after receiving PHC’s cease-and-desist order, Nuveen’s head of equities and fixed-income William T. Huffman told the court, Law360 quoted Huffman as saying.
PHC sent the order after hearing from banks of Nuveen’s increased efforts at an alleged boycott with banks forced to choose with which company to maintain a relationship. The lawsuit was filed in late February not long after the cease-and-desist order as PHC said Nuveen’s response lacked teeth and it feared losing its relationship with Deutsche Bank, it primary capital provider over the alleged threats.
Nuveen also said it launched an examination of its policies and training after the order was received.
Nuveen lawyers also sought to convince the judge that the pressure exerted — based on the audio recordings — didn’t succeed because work with some firms has continued. Nuveen lawyers also offered video depositions from officials at Goldman Sachs, JPMorgan Chase, Bank of America Corp., the Royal Bank of Canada and others that said none had agreed to any boycott, according to the published reports.
Thompson and other PHC officials disputed some of Nuveen’s data, calling it erroneous, and pointed to the transcripts and lack of business with some banks as evidence that the boycott had worked with some firms. PHC officials said most of the firm’s business is now originated by the firm whereas in the past banks and broker-dealers also brought PHC potential deals, according to the published reports.
In other testimony, Nuveen expert witness Ed Snyder, professor of economics and management at Yale School of Management, staked out the position that Nuveen’s alleged actions would not drive PHC out of business, citing the firm’s number of deals over the last year, according to the published reports.
PHC offered its own expert witness, economist Jeremy Verlinda, who is a former Justice Department official now with The Brattle Group. He told the court given Nuveen’s size it likely enjoyed sufficient coercive power to influence broker-dealers.
The case originally was brought with four causes of unlawful action including Tortious Interference with Contract, Tortious Interference with Prospective Business Relations, violations of the New York Donnelly Antitrust Act, and Defamation. Glasscock has dismissed the tortious contract claim and the defamation charge.
The complaint asks the court for a preliminary and permanent injunction ordering Nuveen to cease the alleged conduct, to order Nuveen to rectify the harm already caused by withdrawing and disavowing retaliatory threats, and asks that Nuveen be directed to adopt supervisory procedures to ensure ban future misconduct that is alleged.
The case pits the Dallas-based lender, which describes itself as a well-capitalized, non-bank finance company specializing in high-yield municipal specialty finance with more $1.8 billion in assets and $1.3 billion in equity capital, against an institutional powerhouse. Nuveen has $930 billion of assets under management including $154 billion in municipals and is a top high-yield manager.
