Banks Defeat Bid to Revive Auction-Rate Antitrust Case

Goldman Sachs Group Inc., UBS AG (UBSN) and Citigroup Inc. (C) defeated an effort to revive lawsuits claiming they violated antitrust laws by abandoning the market for auction-rate securities.

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.

Other banks named as defendants in the case included Morgan Stanley (MS), JPMorgan Chase & Co. (JPM), Deutsche Bank AG (DBK) and Bank of America Corp. (BAC)

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).

To contact the reporters on this story: David McLaughlin in New York at dmclaughlin9@bloomberg.net; and Christie Smythe in Manhattan federal court at csmythe1@bloomberg.net

To contact the editors responsible for this story: John Pickering at jpickering@bloomberg.net; Michael Hytha at mhytha@bloomberg.net.

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