TAMPA — A jury of seven will begin deliberations today to decide if St. Petersburg should recoup more than $10 million in bad investments in Lehman Brothers, the Wall Street firm that went bankrupt in 2008.
During closing arguments Monday in U.S. District Court, lawyers framed the weeklong case in simple terms: "It's the other guy's fault."
For the city, it's the fault of Wachovia Global Securities, its former financial adviser now owned by Wells Fargo. The city says Wachovia didn't tell city officials that Lehman Brothers, of which the city held $15 million in corporate bonds at the time of its bankruptcy, was downgraded on three separate occasions by three separate ratings agencies in the summer of 2008.
Wells Fargo disputes the allegation that Wachovia didn't alert the city, but there's no written documentation that it did.
In a forceful closing argument that tapped into popular discontent with the banking industry, attorney Rob Marcus said that Wachovia's failure to notify violated the bank's contract with the city and makes it liable for about $10.4 million in losses.
"They were negligent," Marcus told the jury. "They had all the information, and they never told St. Petersburg. It's really simple. Wachovia didn't do what it was asked to do. That's really not much to ask from a bank. If we pay you for advice, give it. That's what we pay you for."
Wells Fargo attorney Jack Cobetto pushed back, blaming the city by hanging the case on one man: former city financial adviser Jeff Spies.
It was Spies who gave contradictory testimony, undermining his credibility and the city's contention that officials didn't know, Cobetto said. Spies at times said he did his due diligence in checking the monthly financial reports that would have contained information about the Lehman Brothers downgrades.
If he had, Cobetto argued, why wouldn't he have noticed that Lehman Brothers had been downgraded twice in June of that year, which was noted in a report he said he reviewed? And a Lehman Brothers subsidiary had been working with the city in a proposal to develop Tropicana Field. The condition of Lehman Brothers was discussed at a June 19, 2008, meeting. And then-Mayor Rick Baker had asked a top city administrator to meet regularly with Spies after March 2008 to analyze the city's investments.
"You couldn't do any due diligence of Lehman at that time and miss the fact that Lehman had been downgraded," Cobetto told the jurors. "This comes down to the credibility of Mr. Spies … to say Mr. Spies wasn't doing his job is an understatement."
Cobetto said the city was shifting responsibility to Wachovia because it didn't want to share the blame.
Marcus had time for one more response. This wasn't about Spies, he told the jury. Spies gave confusing testimony because he has been retired for two years and this is a complicated case.
"This is about Wachovia shifting responsibility," he said.
Where the jury will come down is anyone's guess. But the verdict could have ramifications nationwide. It's the first of about 12 lawsuits that have been filed against Wachovia that Wells Fargo is defending. Throughout the trial, attorneys representing other clients have attended.
On Monday, Sarasota officials were in the courtroom to watch proceedings. Sarasota lost $40 million in Lehman Brothers corporate bonds. That trial is set to begin in August.