Board approves $750,000 settlement from Goldman Sachs

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The Reno City Council voted unanimously on Wednesday to approve a $750,000 settlement with Goldman Sachs over a risky bond system the city used in 2005 and 2006 to refinance debt from the construction of the train trench downtown.

Under the terms of the settlement, the investment bank will pay the city $750,000 but will not admit liability for the $13 million in losses the city suffered from the refinancing program.

The settlement ends four years of litigation stemming from a lawsuit filed by Reno against Goldman Sachs, accusing the banking giant of misleading the city by using the risky bonds.

The New Orleans law firm that represented Reno worked out the contingencies and will keep up to $450,000 of the settlement.

“It’s good to have that part of the trench finances behind us,” said Councilwoman Jenny Brekhus.

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.

Reno sought $13 million in damages from the bank.

About $47 million of bonds remain outstanding, with no payments made on principal or interest. Revenue from the 1/8 cent sales tax passed for the train trench is not enough to cover all the payments due on the bonds.

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