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Pasco School Board to sue Citigroup over fraud allegations

Published Jun. 19, 2013

LAND O'LAKES — Rushing to beat a June 30 deadline, the Pasco School Board on Tuesday decided to sue Citigroup over allegations of fraud in bond issuances from 2007 and 2008.

The district stands to recoup up to $10 million if the action is successful, superintendent Kurt Browning told the board in recommending the suit.

It does not face any out-of-pocket costs to pursue the case.

"I'll take $8 million to $10 million any way I can get it, legally," Browning said. "We have agonized over this because we want to make sure we have a solid claim."

He would have waited, except the Florida Supreme Court recently ruled that such cases had a six-year statute of limitations. That deadline comes at the end of the month, prompting the quick action.

The item did not appear on the board's agenda.

Attorney Jim Magazine advised the board that it has a solid claim against Citigroup regarding the auction rate securities that the district sold.

He said his firm and others have won seven cases around the country, and have several other cases ongoing.

The issue, he said, is that the financial institutions were marketing the securities even though they had no organic market. The institutions then propped up the market with their own funds, Magazine said, eventually pulling out at a high cost to the school district.

Internal emails the lawyers have detail the specifics in depth, to the point that the issuers are settling these cases, Magazine said.

"We know as late as you got issued, they knew industrywide that this was going to fail," Magazine told the board. "They were going to get the interest on all the bonds when it failed, and then you were going to refinance."

Board chairwoman Cynthia Armstrong raised concerns of whether the lawsuit would affect the district's other bond dealings.

Assistant superintendent Ray Gadd said the district recently hired Citigroup for other bond deals, and mentioned the suit might occur.

"They indicated they still wanted our business regardless," Gadd said.

If the district is successful, the law firm would get 35 percent of the winnings, plus costs. It is unclear how the district's share of the funds could be used.

"I'd much rather get a percentage of some money rather than let this opportunity go by," board member Joanne Hurley said.

Jeffrey S. Solochek can be reached at


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