Photo of Goldman Sachs on Wall Street.
RENO, Nev. (AP) - Reno is suing Goldman Sachs, alleging the Wall
Street investment firm misled the city in issuing $210 million in bonds used to finance the downtown events center and railroad trench project.
The city claims Goldman persuaded it to issue the bonds in a specialized market known as auction rate securities that the bank
maintained was safe even though it knew the market was volatile and
risky, the Reno Gazette-Journal report ed. Goldman declined to comment.
Reno is seeking arbitration against the bank through the Financial Industry Regulatory Authority.
Attorney Joe Peiffer, with the New Orleans-based law firm Fishman Haygood Phelps, told the newspaper that damages sought could total in the "multiple millions" of dollars. His firm was hired by the city to pursue the case and will be paid on a contingency basis.
"The problem was they weren't told everything (they) needed to know to understand the risk," Peiffer said. "It was something the banks knew and didn't tell the cities."
When the market crashed in 2008, Reno's interest rates spiked, forcing the city to scramble to refinance through Goldman Sachs, which also served as Reno's underwriter and broker-dealer for the bonds.
That resulted in millions in extra fees and interest payments.
In auction-rate securities markets, investors trade what resembles corporate debt, but interest rates are reset at frequent auctions.
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