In a victory for city officials, Merrill Lynch yesterday acknowledged that neither “the City of Springfield nor the Springfield Financial Control Board (SFCB) approved the purchases of these investments. After carefully reviewing the facts, we have determined the purchases of these securities were made without the express permission of the City. As a result, we have taken appropriate steps internally to ensure this conduct is not repeated,” said Merrill spokesperson Bill Halldin.
The spat began on January 10, when Springfield mayor Domenic Sarno asked Massachusetts state auditor Joseph DeNucci to launch an investigation of investments made by Merrill Lynch on the city's behalf. The request followed the SFCB's announcement on December 20 that CDOs acquired by the Wall Street bank between April and June 2007 at a cost of $13.9 million had plummeted in value to just $1.25 million by November 30.
“The focus of our investigation was on determining whether funds could be recovered for the City of Springfield and its taxpayers. We appreciate that Merrill Lynch today has announced it will be providing the City of Springfield with full reimbursement of all invested monies. We will continue to review this matter to determine if additional action by our office is necessary," said Massachusetts attorney-general Martha Coakley.
The settlement is just the latest in a growing trend across the US that has seen municipal and state officials attempt to take on financial institutions over perceived market abuses. Yesterday Goldman Sachs confirmed it is being investigated by New York attorney-general Andrew Cuomo and the FBI over the role it played in securitising and selling off pools of subprime mortgages. And the mayor of Cleveland, Ohio announced earlier this month that the city has served papers to 21 Wall Street banks, “who financed and cultivated the subprime market” and thereby “violated the Ohio public nuisance law.”
January also saw a lawsuit filed by the mayor of Baltimore, Maryland, alleging "that Wells Fargo Bank has, since at least 2000, intentionally targeted Baltimore’s minority communities for bad loans with discriminatory and unfair terms".
Further litigation is expected to emerge across the US throughout 2008.
See also: Banks reveal further subprime wounds
The week on Risk.net, July 7-13, 2018Receive this by email