Make us your home page
Instagram

Today’s top headlines delivered to you daily.

(View our Privacy Policy)

St. Petersburg sues its former investment banker, claiming it lost $15 million

ST. PETERSBURG — City officials filed a federal lawsuit against Wachovia Global Securities Lending this week, claiming that its former investment banker was directly responsible for the city losing $15 million in the securities market in 2008.

The suit alleges that Wachovia, which has since merged with Wells Fargo, violated its lending agreement with the city by making a poor decision by investing in Lehman Bros. corporate bonds, then failing to alert the city when those bonds plummeted in value in the summer of 2008.

The suit had been anticipated for quite some time, and could help the city recoup its losses.

A St. Petersburg Times analysis found that city officials routinely ignored oversight procedures designed to protect losses for nearly a decade. The lapses included the failure of then-Mayor Rick Baker's staff to provide the City Council with regular written financial reports, which is required by the city's investment policy. Also, the city's finance director, Jeff Spies, rarely mentioned anything about the securities lending account in his quarterly financial reports, even as the bonds plummeted.

The city has since made corrections to its review procedures, and the council gets regular financial updates.

Throughout the past decade, the city invested about $400 million, or most of its operating budget. Until 2008, half of that was in securities, an especially risky type of investing. In securities lending, the city temporarily lends its assets to other borrowers and receives cash as collateral, which is then reinvested to make money.

In the lawsuit, the city acknowledges knowing little about this type of investing and relying too much on Wachovia.

"Due to its lack of knowledge and sophistication regarding the securities lending program, the city relied heavily on (Wachovia's) expertise, integrity and professional judgment," the suit states. "The city trusted" Wachovia.

The agreement requires Wachovia and the city to share in revenue, which is defined as "gains and losses." Therefore, the city says, Wachovia owes its share of the losses.

The suit alleges that Wachovia failed to share information about Lehman Bros. bonds that the city owned. In the summer of 2008, as the housing collapse had begun and rating agencies were growing aware that Wall Street had bet too heavily on a bubble, Lehman Bros. stock was downgraded. Wachovia didn't alert the city to the new ratings, a violation of its agreement, the suit claims.

If it had warned the city about Lehman's decline, the city would have sold the bonds to "avoid any further losses."

It wasn't until Lehman filed for bankruptcy on Sept. 15, 2008, that Wachovia told the city of concerns about the now-defunct company's bonds with the city, the suit says.

"(Wachovia) simply told the city it was surprised that Lehman was not bailed out by the government," the suit alleges. "At no time prior, however, did (Wachovia) advise the city that the value of its investment was conditioned on a government bailout."

Michael Van Sickler can be reached at [email protected] or (727) 893-8037.

St. Petersburg sues its former investment banker, claiming it lost $15 million 03/25/10 [Last modified: Thursday, March 25, 2010 10:23pm]
Photo reprints | Article reprints

© 2017 Tampa Bay Times

    

Join the discussion: Click to view comments, add yours

Loading...
  1. Lightning edges Red Wings on road

    Lightning Strikes

    DETROIT — The digs were different, the Lightning seeing the masterfully-done new Little Caesar's Arena for the first time.

    Lightning center/Red Wings’ killer Tyler Johnson gets past defenseman Trevor Daley on his way to the first goal of the game.
  2. Armwood pulls away to defeat Plant 27-7, remain undefeated

    Footballpreps

    SEFFNER — First-year Armwood coach Evan Davis pulled out all the stops to get his team psyched for Monday's annual grudge match against Plant.

    Armwood defensive end Malcolm Lamar (97) gets fired up before the start of the game between Plant High School Panthers and the Armwood High School Hawks in Suffer, Fla. on Monday, Oct. 16, 2017.
  3. Clearwater police: Car thief dead after owner fires gun

    Crime

    CLEARWATER — One man is dead after the owner of a car fired shots at the thieves who were stealing it Monday night, police said.

  4. Iraqi forces sweep into Kirkuk, checking Kurdish independence drive

    World

    KIRKUK, Iraq — After weeks of threats and posturing, the Iraqi government began a military assault Monday to curb the independence drive by the nation's Kurdish minority, wresting oil fields and a contested city from separatists pushing to break away from Iraq.

    Iraqi security forces patrol Monday in Tuz Khormato, about 45 miles south of Kirkuk, a disputed city that the government seized in response to last month’s Kurdish vote for independence.
  5. Trump and McConnell strive for unity amid rising tensions

    National

    WASHINGTON — President Donald Trump and Sen. Mitch McConnell, the Republican leader, tried to convey a sense of harmony Monday after months of private feuding that threatened to undermine their party's legislative push in the coming weeks to enact a sweeping tax cut.

    President Donald Trump and Senate Majority Leader Mitch McConnell field questions Monday in the Rose Garden of the White House. “We have been friends for a long time,” Trump said.