Sacramento sues big banks over derivatives

The allegations resemble those made by a U.S. grand jury in New York last month, according to the lawsuit filed Nov. 12 in federal court in Sacramento. CDR Financial Products Inc. founder David Rubin and two employees of the Beverly Hills, California- based company were indicted for allegedly accepting kickbacks on investments sold to local governments. CDR is also named as a defendant in the Sacramento case.

The banks engaged in “allocating customers and markets for municipal derivatives, rigging the bidding process by which municipal bond issuers acquire municipal derivatives, and conspiring to manipulate the terms that issuers received,” according to the lawsuit.

The charges against Rubin and the CDR employees were the first to result from a more than three-year investigation into bid-rigging in the municipal bond market. The probe is continuing and has already drawn in some two dozen banks, insurers and local government advisers.

Derivatives are unregulated financial instruments linked to stocks, bonds, loans, currencies and commodities, or linked to specific events such as changes in interest rates or weather.

Shirley Norton, a Bank of America spokeswoman, didn’t immediately return a call seeking comment after regular business hours yesterday.

SMUD, which provides electricity to Sacramento County and part of Placer County, is the sixth-biggest publicly owned utility in the U.S. by customers served, according to its Web site.

The case is Sacramento Municipal Utility District v. Bank of America, 09-01810, U.S. District Court, Eastern District of California (Sacramento).