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San Francisco files suit against five bond insurers to recoup losses
By Cristal Cody
Tupelo, Miss., Oct. 8 - San Francisco city attorney Dennis Herrera filed lawsuits against five municipal bonds insurers on Wednesday alleging an elaborate web of anticompetitive practices, negligence and fraud that was exposed by the subprime mortgage market meltdown.
The suit, City and County of San Francisco v. Ambac Financial Group, Inc. et al, was filed in San Francisco Superior Court and names as defendants Ambac Financial Group Inc., XL Capital Insurance Ltd. Armonk, Financial Guaranty Insurance Co., CIFG Assurance North America Inc. and MBIA Inc.
The suit argues that bond insurers schemed to force local governments in California to purchase bond insurance for higher credit ratings and more favorable interest rates under a dual rating scheme that rated public entities lower in credit-worthiness than corporations.
Because of the subprime mortgage failures, the insurers' credit ratings were downgraded. Local governments were left with worthless insurance coverage they had purchased with millions of taxpayer dollars and the municipalities were forced to refinance debt obligations.
Herrera said the action mirrors similar efforts by Los Angeles, Stockton and Oakland to recoup losses from the insurers.
The suit seeks unspecified damages and injunctive relief.
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