Sacramento utility sues Goldman, other firms over bond losses

Sacramento BeeNovember 13, 2009 

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The Sacramento Municipal Utility District sued Goldman Sachs, Morgan Stanley and 45 other financial firms Thursday in Sacramento federal court for allegedly rigging bids in bond-derivatives markets and defrauding the utility.

SMUD joined at least six city and county governments in California that already have filed similar lawsuits arising from a federal investigation made public in 2006. Many other public entities around the country have joined in lawsuits seeking class-action status.

The SMUD filing is the first to name Goldman Sachs as a defendant, according to lawyers working with the utility.

The litigation deals with bond-related financial instruments often used by local and state governments and other public entities when financing projects such as power plants.

After money is raised through a bond sale, but before it is spent on a project, it is often invested in municipal derivatives to earn a return. Another type of derivative is used to help public entities hedge against shifts in interest rates on variable-rate bonds. In both cases, competitive bidding is supposed to ensure the best possible return.

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