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Related: Editorials & Other Articles, Issue Forums, Alliance Forums, Region ForumsKevyn Orr Indicates Big Banks Might Have Defrauded Detroit
Nathan Bomey of the Detroit Free Press reports that Detroit emergency manager Kevyn Orr testified in U.S. Bankruptcy Court Friday that he had asked the U.S. Securities and Exchange Commission to consider prosecuting two global banks over a disastrous debt deal from 2005 that helped plunge Detroit into bankruptcy.
Bomey wrote:
Orr said this morning that he had conversations with the SEC about filing actions against UBS and Bank of America Merrill Lynch, which collectively provided interest-rate swaps on a $1.4 billion pension debt deal originating in 2005.
He did not say how the SEC responded to his request. The Free Press reported in September that the deal might have been illegal.
Orr said he thought the city might have a potential fraud claim against the bank, but added that the city decided to settle the swaps debt in lieu of a legal battle.
http://www.deadlinedetroit.com/articles/7800/kevyn_orr_indicates_big_banks_might_have_defrauded_city
Today, Orr acknowledged "serious questions" about whether the city owes a dime on the deal, saying the city might have a "potential fraud claim" against the banks.
Still, he said the city decided to settle the swaps debt instead of pursuing a legal challenge, calling the chances of success 50-50.
The original swaps settlement collapsed last month after U.S. Bankruptcy Judge Steven Rhodes questioned the citys decision to pay $230 million to settle the $293-million swaps debt, suggesting the deal might be too generous to the banks.
At the time, Rhodes also questioned the citys decision not to disclose its legal assessment of the $1.4 billion pension obligation certificates of participation deal and related swaps.
Lawyers for Jones Day, the citys bankruptcy law firm, told Rhodes that they were hiding the strategy because they might still sue the banks.
But this morning, Orr disclosed the citys legal assessment in detail, marking an about-face from the citys previous strategy.
Orr acknowledged:
--The citys 2009 decision to pledge its casino tax revenue as collateral on the swaps might have been illegal because the Michigan Gaming Act may not allow the pledge.
--The original 2005 debt deal might have been illegal because it may have put the city over its legal debt limit.
--The city might have a fraud claim against the banks for effectively tricking the city into the swaps deal by leveraging "superior" information about future interest rates.
--UBS involvement in an interest-rate manipulation scandal might have led to a fraud claim for the city.
Problematic for the city is that City Council at the time secured legal opinions approving the pension debt and swaps deals. The City Council also secured a letter of approval from the states gaming board approving the use of casino tax revenues as collateral.
Orr said it would be too risky to pursue a legal challenge against the swaps because it would take too long, cost too much and raise a serious chance of defeat....
The city has argued that getting rid of the swaps would free up cash flow to reinvest in public safety and blight removal, while also removing restrictions over the use of its vital casino tax revenue.
http://www.freep.com/article/20140103/NEWS01/301030066/Kevyn-Orr-asked-SEC-about-prosecuting-banks-over-Detroit-debt-deal
Attorney Jerome Goldberg, appearing on behalf of City of Detroit retiree David Sole, questions Emergency Manager Kevyn Orr regarding the interest rate swaps deal, viewed by many as another gift to the very banks that destroyed Detroits neighborhoods using subprime mortgages and that have been charged and convicted of fraud of all sorts.
http://detroitdebtmoratorium.org/jerome-goldberg-questions-em-kevyn-orr-over-giveaway-to-bank-of-america-ubs-on-jan-3-2014/
msongs
(67,459 posts)g those naughty big banks might be bad for the economy...of the filthy rich
El_Johns
(1,805 posts)Orr's firm, Jones-Day, numbers Citi & others among its clients.
How is this not conflict of interest?
Orr testified that he believed the citys potential in succeeding in this complaint, which could recover up to $500 million from these banks, was 50-50.
Pursuing this complaint against the banks would net real revenue to rebuild Detroits neighborhoods which were destroyed by approximately 100,000 foreclosures resulting from the predatory lending practices of the banks.
Incredibly, instead of pursuing this complaint, this week Emergency Manager Orr is going to the bankruptcy court to seek approval of a deal that was negotiated last week to pay Bank of America and UBS $165 million plus $4million in breakage costs to terminate the interest rate swaps which have already netted the banks about $300 million in profit.
He will also seek approval of a loan from Barclays at interest rates up 8.5% to pay this $165 million to UBS and Bank of America, secured by a $48 million per year lien on city income tax revenues for the next 4 years, which amounts to about 20% of all income taxes collected.
Rather than going after the banks to make them repay the city for the destruction they have caused, Emergency Manager Orr is opting to allow the banks to continue their stranglehold over Detroits finances, ensuring that services, jobs and pensions will continue to be slashed.
http://detroitdebtmoratorium.org/kevin-orr-go-after-bank-of-america-and-ubs-not-city-of-detroit-pensioners-and-city-services/
Then there's this:
Orr did not explain what legal analysis allowed Detroits former Chief Financial Officer Sean Werdlow to take a top level management job with Siebert, Brandford and Shank (SBS), UBS partner in the COPS deal, nine months after Council approved the deal in 2005. Werdlow was in that position in 2006 when the deal was re-negotiated to cover 30 instead of 14 years, and is now COO of SBS.
U.S. Bankruptcy Court Judge Steven W. Rhodes head popped up as Orr attempted to gloss over the CFO issue, failing to name Werdlow. Rhodes demanded his name. It will be enlightening to see how Rhodes rules after eliciting this apparently undisputable evidence of bribery of a city official.
http://detroitdebtmoratorium.org/kevin-orr-go-after-bank-of-america-and-ubs-not-city-of-detroit-pensioners-and-city-services/
And this:
Wallace Turbeville, senior analyst at Demos, who Judge Rhodes barred from testifying at the trial, raised the service corporation issue in a special report on the Detroit bankruptcy in November, 2013. Turbeville also noted that the POCs were used as a substitute for voter-approved bonds, constituting an end run around the right of the citys residents to decide its level of indebtedness.
Rhodes said he barred Turbeville, a former Wall Street banker, from testifying because he wanted to wrap up the trial by Jan. 6, saying he (Rhodes) would not be available after that day.
http://voiceofdetroit.net/2014/01/12/em-orrs-detroit-bankruptcy-testimony-banks-could-owe-city-billions-related-to-fraudulent-cops-swaps/