The auction rate securities sold to Reno had a higher risk than the bank disclosed. Reno is left with extra fees and interest payments when they refinanced through Goldman. The article explains here how auction rate securities worked with the help of the banks. Reno could face default if an agreement cannot be made with Goldman Sachs.
Conclusion: No city should want to use Goldman Sachs as its bank of choice.
Reno takes on Goldman SachsRead the entire article here
City alleges bank misrepresented risk
By Brian Duggan - RGJ.com
Reno is suing Goldman Sachs, alleging fraud against one of Wall Street’s largest investment firms.
The city claims Goldman persuaded Reno to issue $210 million in bonds in a specialized market that the bank claimed was safe even though it knew it could turn toxic.
Reno is seeking arbitration against the bank through the Financial Industry Regulatory Authority, basically a private court for financial institutions.
Reno seeks “to recover the damages it sustained due to Goldman’s misrepresentations and omissions” when the city issued the bonds on the so-called “auction rate securities” market in 2005 and 2006 for its downtown events center and railroad trench projects, according to complaint filed in February.
Goldman Sachs declined to comment for this article.
The saga over auction rate securities is just one of many financial crises Reno currently faces. This includes distressed redevelopment debt that’s teetering on default and falling revenues that have forced it to cut city staff, including firefighters and police, by about a third since 2009.
Joe Peiffer, an attorney with the New Orleans-based law firm Fishman Haygood Phelps that was hired in December to represent Reno, said Wednesday those damages could total into the “multiple millions” of dollars.