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Reno to settle Goldman Sachs lawsuit for $750,000

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The city of Reno is set to settle its years-long lawsuit against Goldman Sachs, which it accused of misleading the city into risky debt that nearly drove the city into insolvency. .

Under the terms of the deal, however, the city will get only a small fraction of the $13 million it was asking for in reimbursement for the penalties and exorbitant interest rates it had to pay when the market for securities at auction collapsed in 2008.

On Dec. 7, the Reno City Council will vote on whether to approve the settlement, which includes a $750,000 payment from Goldman Sachs. Other than payment, the details of the deal remain confidential.

“We haven’t finalized anything yet,” said Joe Peiffer, a New Orleans-based attorney the city hired for the litigation. “We’re almost there. It’s confidential so I can’t say much other than, I think the games have been settled to everyone’s satisfaction.”

Peiffer worked for the city in an emergency, so a portion of the settlement funds will go to his law firm. The exact amount was not available Wednesday.

Robert Chisel, Reno’s chief financial officer, acknowledged that the city was unable to recoup all of its losses through the settlement, but added that it was more than the city would get if it lost in court.

“If you look at some of these other cases that have been there, they don’t usually win these days,” he said.

At stake is $210 million in bonds the city issued in 2005 and 2006 to refinance debt from the downtown train trench and event center. According to the city’s lawsuit, Goldman Sachs did not disclose the serious risk in the volatile auction securities market, or that the bank was artificially supporting the market by driving down interest rates.

Reno leaders — former city manager Charles McNeely and former mayor Bob Cashell — were lured by the idea of ​​low interest rates, even taking an additional $20 million for “downtown projects” , just like a homeowner might buy a boat by borrowing against the equity in their home.

But when financial markets crashed in 2008 and banks stopped bidding on auction rates, rates soared. This earned Reno a 15% interest rate on the debt, as well as millions in penalties owed to Goldman Sachs.

A review of city financial records shows payments to Goldman Sachs more than doubled from $2.6 million to $7 million between 2012 and 2013.

In 2008, Reno rushed to refinance the debt. The majority is now held by Bank of New York. Reno still owes Goldman Sachs $47 million. This link, however, is on hold until 2018.

The bonds are paid for through an 1/8 cent sales tax, which currently does not generate enough revenue for the city to make payments to the Bank of New York and Goldman Sachs. Because these are tax liabilities, however, the city’s general fund is not responsible for the payments.