TAMPA — There's no question that the collapse of Lehman Bros. in 2008 blind-sided St. Petersburg officials who had invested and lost $11 million in the troubled Wall Street firm.
For the next week and a half, a jury of eight will weight whether the city should get its money back.
In a trial that began Monday before U.S. Magistrate Judge Thomas McCoun in federal court, St. Petersburg lawyers blamed its financial adviser for the devastating loss. Wachovia Global Securities didn't warn city officials about the pending crash because it was too heavily invested in Lehman Bros., city attorneys argued.
"This is a case of broken promises and a bank more concerned with protecting itself than taking care of its customers," Robert Marcus, a Charlotte, N.C., attorney hired by St. Petersburg, said in his opening statement.
Wells Fargo, a financial services firm that bought Wachovia in 2009, blames city officials. The city's financial adviser at the time, Jeff Spies, didn't review reports and updates given to him by Wachovia, alerting him to the growing problems with Lehman Bros. stock in the summer of 2008, said Wells Fargo's attorney Mary Hackett.
"The city didn't monitor this program at all," Hackett told jurors. "(Spies) didn't review the statements. No one with the city did."
The Lehman Bros. bonds in dispute are now worth about $4 million as the firm emerges from bankruptcy. So the city is trying to get $11 million back.
The attorneys tried to make the case sound simple. But the trial will delve into everything from contract law to the complex financial investments that helped bring down the U.S. economy in 2008.
Taking the stand will be government bureaucrats, including former St. Petersburg Mayor Rick Baker, officials from defunct Wall Street firms and a range of experts that includes Glenn Hubbard, the dean of the Graduate School of Business of Columbia University and the former chairman of President George W. Bush's Council of Economic Advisers.
The trial promises to be chock-full of dense material for any MBA, let alone a jury of Tampa Bay residents. Occupations of the jurors include a middle school teacher, a cook and an office manager. One man is unemployed. Only one, an accountant for a timeshare company, has a financial background.
It didn't take long for jurors to struggle to stay awake. Just after they had been picked, at least two of them dozed during the city's opening statement.
Marcus argued that as Lehman Bros. was getting downgraded, Wachovia advisers failed to notify the city.
He said internal Wachovia memos will show the bank was operating more out of self-interest leading up to the Lehman Bros. collapse in September 2008. Marcus said Wachovia held too much in Lehman Bros. bonds and wasn't in a position to sell in 2007 or tell clients to do likewise.
Marcus said Wachovia held on to the sinking investment not because if felt that Lehman Bros. would rebound, but that if it did fail, it would be bailed out by the federal government.
"That's a bet (Wachovia) made with their own money," Marcus said. "Problem was, that's a bet St. Petersburg was never asked about."
He then displayed an email from a Wachovia official written after Lehman's bankruptcy: "Everyone is still surprised Lehman was not bailed out."
Wells Fargo attorneys will try to show that city officials were culpable. It's just that they didn't pay attention.
Hackett showed a video of an April 2011 deposition of City Administrator Tish Elston in which she was asked if she knew that Spies hadn't been reviewing reports on the Lehman Bros. investments.
"Did you assume someone was reviewing the information provided about Wachovia?" an attorney asked Elston.
"I don't recall having that assumption."
"Do you think it should have been reviewed?"
After a long pause, Elston responded: "I would have hoped there would have been some attention paid to them."
With that, the video ended and Hackett turned to the jury.
"The evidence will show no attention was paid to them," she said.