HARRISBURG, Penn.—The state of Pennsylvania is bringing a class-action lawsuit against more than a dozen of the world's biggest financial institutions for allegedly price-fixing bonds issued by government-sponsored enterprises Fannie Mae and Freddie Mac.
The lawsuit claims that the financial institutions – which include Bank of America, Barclays Capital, BNP Paribas, Citigroup and more – conspired to fix the prices of more than $485 billion in GSE bonds over five years by both overcharging and underpaying investors, HousingWire reported.
The lawsuit, filed by Pennsylvania Treasurer Joe Torsella, is a class action that alleges the state invested in the bonds but was financially harmed by the financial institutions’ actions. The lawsuit seeks to have other aggrieved parties join it, with the lawsuit further alleging the groups’ supposed conduct may have harmed “at least thousands” of other investors.
‘Not Mortgage Bonds’
“It’s important to note that the bonds in question are not mortgage bonds. They are bonds issued by the government-sponsored enterprises to support their operations,” Housing Wire reported. “The bonds are traded ‘over the counter,’ which means that investors work with the bond trading desks at the named institutions to buy and sell the bonds. Since the bonds are not traded on a public exchange, the broker wields more control over pricing, as comparative bond trading is not made public. Bond values must then be derived based on a price the buyer is willing to pay and what the seller is willing to sell for; known as derivative trading.”
The lawsuit claims the named institutions conspired to fix the prices on those bonds, which allowed them to underpay sellers and overcharge buyers.
“Because the FFB market is an opaque, OTC market, Defendants were able to charge fixed prices without revealing their conspiracy to their customers,” the lawsuit claims.