VISTA, Calif. (CN) – An investment banking firm claims Bank of America paid kickbacks for a “last look” at other investment groups’ bids to participate in refunding the debt of California school districts and “to raise money for school-related projects for these districts.”
Kinsell, Newcomb and De Dios (KND), of Carlsbad, says it participated in 26 advance refunding programs to school districts “to provide the school districts with substantial cash-flow savings as a result of semi-annual principal payments; and the ability to provide the school districts with an upfront cash payment equal to approximately one percent of the outstanding principal amount of their original bond issue,” according to the complaint in San Diego County Court.
KND says it “purchased the refunding bonds from the school district and then re-marketed each bond to individual investors and to large institutional clients (which were often individual investors).” (Parentheses in complaint.)
To comply with the Federal Tax Code, the plaintiff hired Chambers, Dunhill, Rubin and Co. (CDR) as an independent broker, the complaint states.
Bank of America won the right to enter into an escrow reinvestment agreement with the escrow agent in six of the 24 school district financings in which KND participated between 1993 and 2003, according to the complaint.
KND claims that Chambers, Dunhill, Rubin and Co. “intentionally misrepresented to KND, as well as all other interested parties to the transaction, that Bank of America only paid CDR a $10,000 broker’s fee in connection with its brokerage services.”
KND adds that the “safe harbor provision prohibited CDR from providing any bidding entity with a bidding advantage over other bidding entities, such as a ‘last look,'” and prevented CDR “from receiving a fee or compensation (directly or indirectly) of any other type in excess of the amount paid as represented by the certificate of the broker.” (Parentheses in complaint.)
But KNS says it learned recently that beginning in the early 2000s, CDR and Bank of America had been the center of a federal investigation into “bid-rigging in the municipal guaranteed investment contract business throughout the country, such as the escrow reinvestment agreement.”
In early 2007, Bank of America entered into an amnesty agreement with the Department of Justice, and agreed to cooperate, in exchange for which it would not be “prosecuted criminally for its participation in the national bid-rigging conspiracy,” the lawsuit claims.
KND says it had to pay the IRS $5 million in 2008 to allow the refunding bonds to remain tax-exempt, but “did not admit to any wrong doing.”
KND says it lost financing projects with the Riverside County/Palm Desert Joint Power Authority, among others, and was prohibited from bidding on work with the City of Chula Vista, the Orange County School District, the City of San Marcos, and the San Marcos School District, after media coverage on “the investigation into the bid-rigging conspiracy between Bank of America and CDR.”
KND seeks treble damages of $45 million for RICO fraud and negligent interference.
It is represented by David Nemeth Jr. with Walt, Tieder, Hoffar & Fitzgerald, of Irvine.