Pasco school district to sue Citigroup over bond deal
LAND O' LAKES - The Pasco County School Board hopes to win $8 to $10 million in a lawsuit accusing Citigroup Inc. of misrepresentations relating to a bond issue.The litigation wasn't on the board's agenda for Tuesday evening, but was added during the meeting because the statute of limitations to file a claim ends June 30.In 2007 and 2008, the school board issued $67.5 million in bonds in the auction-rate securities market, which New York-based Citigroup and other financial firms artificially were propping up by placing bids themselves, hiding the fact there was no real investor market for the bonds, according to school district emails and memorandums.Auction-rate securities are a type of bond where investors place bids that set the interest rates.When the auction-rate securities market collapsed in 2008, the Pasco school board was left owing penalties of more than $6 million."No one could have known the fraud they were perpetrating on everybody," said Jim Magazine, an attorney who will handle the case for the school board and is involved in other cases against Citigroup.He said he has helped successfully settle seven cases against the company.The cases end up in arbitration rather than in the courts, Magazine said. The school board would owe nothing if the case is unsuccessful, but Magazine's law firm would receive a 35 percent fee and expenses if Pasco wins a settlement.Danielle Romero-Apsilos, a spokeswoman for Citigroup, declined to comment.Superintendent Kurt Browning said he has been in discussions with staff members for several months about the possibility of taking legal action."We have agonized over this because we want to make sure we have a solid claim," Browning said.Even before the school board issued its bonds in 2007, the U.S. Securities and Exchange Commission had investigated how financial companies were placing their own bids in the auction-rate securities market, and ordered the companies to disclose those activities to customers, according to an attorney's letter to Assistant Superintendent Ray Gadd.The school board's agreement with Citigroup does include such a disclosure statement. But the attorney's letter said "these boilerplate disclosures did not disclose the whole truth, which was that broker-dealers like UBS and Citigroup knew that without their artificial support bids" there was no true market for the product.