April 20, 2024

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Whistleblower to see $14.4 million payout in Wall Street VRDO lawsuit

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Whistleblower to see .4 million payout in Wall Street VRDO lawsuit

The whistleblower who brought a lawsuit charging Wall Street banks with rigging the state of Illinois’ variable-rate bonds will receive a $14.4 million payout under a final settlement that ends the decade-long case.

The payout is part of a $70 million agreement that the group of eight banks agreed to pay last year to end the case with Illinois days before a trial was set to begin.

The Illinois case is part of a series of state-level lawsuits brought by Minnesota-based municipal advisor Johan Rosenberg, who filed them under the name of a Delaware-incorporated entity called Edelweiss Fund LLC.

Under the settlement, Rosenberg will receive $14.4 million, Illinois will receive $33.6 million and the myriad of law firms that represented Edelweiss will receive $22 million.

Rosenberg’s payout represents 30% of the state’s $48 million, which is the maximum percentage a whistleblower can receive under the False Claims Act in Illinois.

Minnesota-based municipal advisor Johan Rosenberg will receive $14.4 million in a settlement from Wall Street banks accused of rigging Illinois’ variable-rate demand bond interest rates.

“I am gratified by the settlement,” Rosenberg said in a statement. “My goal when I started scrutinizing the manner in which rates on VRDOs were reset in about 2010 was to shine a light on this market because of the benefit the public receives from the critical government projects that VRDOs fund. In the years since the litigation began, we have uncovered much that was unknown about how this market is operated and how remarketing agents behave.  I remain hopeful we will obtain similar results for the other states.”

The banks had maintained in court filings that the information Rosenberg based his claim on was nothing more than public data available on EMMA, while Rosenberg’s legal team maintained that the information was the result of Rosenberg’s own analysis. That analysis showed that firms were “bucketing” VRDOs together and moving their rates en masse without respect to the characteristics of the individual securities, according to the lawsuits.

Rosenberg originally sued for damages of about $243 million, which, with “mandatory trebled damages and penalties” would climb to $730 million.  

The $70 million settlement marks the largest reported settlement to date under the Illinois False Claims Act, according to Rosenberg’s attorneys. Illinois Attorney General Kwame Raoul did not respond to a request for comment.

The accused banks in the Illinois case are, or are affiliates of, JPMorgan Chase & Co.; Citigroup Inc.; William Blair & Company, LLC; Bank of America, N.A.; Merrill Lynch.; Morgan Stanley; BMO Financial Corp.; Barclays Capital Inc.; Fifth Third Bancorp; Fifth Third Bank; and Fifth Third Securities, Inc.

Cases in California, New York and New Jersey are pending.

The lawsuits accuse the banks of conspiring to keep VRDO interest rates high so investors would not exercise their rights to tender the VRDOs back to the banks serving as remarketing agents, thus allowing the banks to collect fees for serving RMAs and for providing letter of credit services without having to actually remarket the bonds.

Edelweiss’ law firms include: Constantine Cannon; Schneider Wallace Cottrell Konecky; McKool Smith; Behn & Wyetzner; DiCello Levitt; Steyer Lowenthal Boodrookas Alvarez & Smith; Whistleblower Law Collaborative; Stone & Magnanini; and Howard Law.