The Wall Street investment bank leading Jefferson County's pitch to exit chapter 9 municipal bankruptcy could be violating securities law if it serves as an underwriter in the deal, a lawsuit brought by Jefferson County sewer ratepayers says, AL.com reported yesterday. Under the Dodd-Frank Wall Street Reform and Consumer Protection Act, an investment bank may not act as both a financial advisor to a municipal issuer and as an underwriter when that debt goes to market. Serving in both roles could create a conflict of interest for the bank, and the practice was outlawed in 2011. That appears to have been what's happening as part of Jefferson County's plan to exit bankruptcy. "The reason for the rule is simple," plaintiff lawyers wrote. "The MSRB and the SEC regard it as a conflict for a municipal dealer to gain the trust and confidence of an issuer through advisory relationship and then switch to an underwriting relationship where the financial rewards are potentially far greater," the lawsuit said. In July, the Jefferson County Commission hired Citigroup Global Markets, Inc. to lead its team when the county returns to the market to sell new warrants. If the county's plan is approved by the court, those warrants would refinance the remaining debt not conceded by the county's creditors. However, Citigroup has worked closely with Jefferson County since at least 2008 to find a solution to its financial problems.
