The U.S. Court of Appeals in New York today upheld a lower-court ruling that dismissed complaints brought on behalf of issuers of the securities and investors. The market was facing an “inevitable death spiral” and the banks’ exit from the market was rational, the court said.
“Defendants’ alleged actions -- their en masse flight from a collapsing market in which they had significant downside exposure -- made perfect business sense,” the court said.
Before the market failed, auction-rate securities had their interest rates periodically reset at auctions. Plaintiffs, including the Baltimore City Council, claimed the banks had propped up the market by bidding and violated antitrust laws by colluding to simultaneously exit the market, according to court papers.
The cases are Mayor and City Council of Baltimore v. Citigroup Inc., 10-0722, and Mayfield v. Citigroup Inc., 10-00867, U.S. Court of Appeals for the Second Circuit (Manhattan).