Alameda Insists It Warned Investors|Of Risks In Fiber Optics Bonds

SAN FRANCISCO (CN) - The City of Alameda denies allegations of securities fraud made by companies that purchased $33 million in bonds for construction of a fiber optic broadband telecommunications system that apparently will not reap the anticipated profits.

Nuveen Municipal Trust bought the Revenue Bond Anticipation Notes on a 5-year term with an above-market tax-free annual interest rate of 7 percent. The notes were unrated and uninsured; repayment was uncertain and contingent on the telecom system's making a profit, Alameda says in its federal complaint.

The competitive landscape changed dramatically since the notes were issued in 2004, with national providers such as Comcast, AT&T and the Dish Network offering comparable or better services at a lower cost, a common situation for small municipal providers nationwide.

Nuveen Municipal Trust claims Alameda did not warn it of the risks of investing in the system. Alameda claims Nuveen is using threats of litigation to prevent the city from selling the system. But the city insists it informed Nuveen of the risks in its Official Statement before issuing the notes.

Alameda says it provided Nuveen with monthly subscriber counts, quarterly reports and annual financial statements and held public meetings to discuss the state of the project.

Alameda wants a declaration of the parties' rights, costs, and other relief. Co-plaintiffs include the Alameda Public Financing Authority and Alameda Public Improvement Corp.

Plaintiffs are represented by Eric Firstman with Wulfsberg Reese of Oakland.

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