Banks rejected by Supreme Court in municipal bond price-fixing case

The U.S. Supreme Court refused to block a class action lawsuit that seeks billions of dollars from Bank of America Corp., JPMorgan Chase & Co. and other financial institutions for allegedly fixing prices in the municipal bond market.

Making no comment, the high court on Monday turned away an appeal from units of eight banks, refusing to hear their arguments that a federal trial judge was wrong to certify the case as a class action. Municipalities led by the city of Philadelphia are pressing the suit, accusing the banks of inflating interest rates on state and municipal bonds.

The case ultimately could settle for about $770 million, with Bank of America and JPMorgan having the biggest potential exposure, according to Bloomberg Intelligence senior litigation analysts Elliott Z. Stein and Jennifer Rie.

The municipalities are also suing units of Citigroup Inc., Morgan Stanley, Goldman Sachs Group Inc., Barclays Plc, Royal Bank of Canada and Wells Fargo & Co.

The dispute centers on the banks’ work as remarketing agents for variable-rate demand bonds, known as VRDOs. In that role, the banks were supposed to regularly reset the interest rates at the lowest possible level that will allow the bonds to trade at face value.

The municipalities accuse the banks of conspiring to set rates above competitive levels to increase their chances of placing the VRBOs with an investor rather than having to keep them in their own inventory. The antitrust lawsuit seeks a total of $12 billion in damages.

In their Supreme Court appeal, the banks said the municipalities hadn’t met one of the class action requirements by showing that issues common to all the plaintiffs would predominate over individual questions. The banks were seeking to overturn a federal appeals court decision that let the class action go forward.

The banks are separately defending against related claims in state court in New York and California under the U.S. False Claims Act. Those cases could settle for $400 million, according to Stein and Rie.