St. Petersburg officials reported to be optimistic
02 August 2010 St. Petersburg
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A federal judge has dismissed two claims by the city against its former investment banker for blowing more than USD15.8 million in Lehman Bros. corporate bonds that tanked in 2008.
Still, St. Petersburg officials remain hopeful that the city will get its money back.
"The three remaining claims are our strongest ones," said Mayor Bill Foster. "So we're confident going forward."
U.S. District Judge Richard Lazzara this week dismissed the city's claim that Wachovia Global Securities Lending engaged in deceptive and unfair trade practices and violated the Florida Securities and Investor Protection Act. But three claims remain, including breach of contract, breach of fiduciary duty and negligence.
City Attorney John Wolfe told council members in a memo that Lazzara's decision was a "primarily positive result." He said the city will continue to pursue the remaining claims.
The city charges that Wachovia, when it served as the city's investment manager, violated its lending agreement with the city by making a poor decision to invest in Lehman Bros. corporate bonds, then failing to alert the city when those bonds plummeted in value.
Wachovia responded in a court filing that the city "was acutely aware" of the risky investment.
"(Wachovia) could only invest (the city's) assets pursuant to the investment guidelines (the city) approved," stated Carlton Fields attorney Samuel Salario in a May 28 filing. "The (city) maintained complete authority over the investments, including whether to sell them."
Attorneys for Wachovia wouldn't comment on Lazzara's ruling.
In dismissing the city's claim that Wachovia engaged in deceptive and unfair trade practices, Lazzara pointed out that a violation is governed by Florida statute, and therefore can't apply to federally regulated banks like Wachovia. He also dismissed the applicability of the Florida Securities and Investor Protection Act, designed to protect from losses in transactions, because the city didn't lose the money in selling the bonds. Instead, Lazzara said, the city lost its money by "holding" onto the securities as they became worthless.
"A 'holder' may not bring a statutory securities fraud action," Lazzara wrote.
Like Wolfe and Foster, council member Karl Nurse said he's encouraged by the claims that remain.
"Those are pretty substantial claims," Nurse said. "The evidence is pretty clear that Wachovia didn't follow the contract. How much do we get? I don't know the answer. But I think after the judge did this, it's time for Wachovia to sit down and strike a deal we can live with."
Michael Van Sickler can be reached on mvansickler@sptimes.com.
Still, St. Petersburg officials remain hopeful that the city will get its money back.
"The three remaining claims are our strongest ones," said Mayor Bill Foster. "So we're confident going forward."
U.S. District Judge Richard Lazzara this week dismissed the city's claim that Wachovia Global Securities Lending engaged in deceptive and unfair trade practices and violated the Florida Securities and Investor Protection Act. But three claims remain, including breach of contract, breach of fiduciary duty and negligence.
City Attorney John Wolfe told council members in a memo that Lazzara's decision was a "primarily positive result." He said the city will continue to pursue the remaining claims.
The city charges that Wachovia, when it served as the city's investment manager, violated its lending agreement with the city by making a poor decision to invest in Lehman Bros. corporate bonds, then failing to alert the city when those bonds plummeted in value.
Wachovia responded in a court filing that the city "was acutely aware" of the risky investment.
"(Wachovia) could only invest (the city's) assets pursuant to the investment guidelines (the city) approved," stated Carlton Fields attorney Samuel Salario in a May 28 filing. "The (city) maintained complete authority over the investments, including whether to sell them."
Attorneys for Wachovia wouldn't comment on Lazzara's ruling.
In dismissing the city's claim that Wachovia engaged in deceptive and unfair trade practices, Lazzara pointed out that a violation is governed by Florida statute, and therefore can't apply to federally regulated banks like Wachovia. He also dismissed the applicability of the Florida Securities and Investor Protection Act, designed to protect from losses in transactions, because the city didn't lose the money in selling the bonds. Instead, Lazzara said, the city lost its money by "holding" onto the securities as they became worthless.
"A 'holder' may not bring a statutory securities fraud action," Lazzara wrote.
Like Wolfe and Foster, council member Karl Nurse said he's encouraged by the claims that remain.
"Those are pretty substantial claims," Nurse said. "The evidence is pretty clear that Wachovia didn't follow the contract. How much do we get? I don't know the answer. But I think after the judge did this, it's time for Wachovia to sit down and strike a deal we can live with."
Michael Van Sickler can be reached on mvansickler@sptimes.com.
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