The Trial began on Monday in a Florida municipality's Federal lawsuit against its financial services "bank"/financial adviser. The City of St. Petersburg has sued Wachovia Global Securities for failing to disclose the condition of Lehman Brothers to the City even as Wachovia allegedly advised St. Petersburg to invest in Lehman bonds and Lehman was going bankrupt.
The bank reportedly counters that the City of St. Petersburg was fully aware of Lehman's condition, which Wachovia itself of course knew. Wachovia Financial Services has since been acquired by Wells Fargo.
As the result of a pretrial ruling in the case, the City of St. Petersburg will be allowed to put on evidence of similar circumstances resulting in losses to other cities. For example, the City of Sarasota reportedly lost $40 Million in a similar investment in Lehman bonds apparently at or about the same time.
The common thread in cities' litigation against their former financial advisers is known as "securities lending". In essence, the cities leased bonds they held, or the right to receive income from them in the future, in exchange for cash payments now. "The risk comes when the city makes an investment that loses money, which would then have to be repaid." Michael Van Slicker, "St. Petersburg Seeks to Recover $15.8 Million in Lost Investments in Trial Monday" (Tampa Bay Times Online, Saturday, March 24, 2012).
Who bears the risk of nondisclosure, on the one hand, or of the equivalent of assumption of the risk, on the other hand, is at issue in such lawsuits.
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