Bank fires back at Reno in bond battle

RENO - Attorneys for Goldman Sachs and Co. say the city of Reno is improperly seeking millions of dollars in damages from the bank through private arbitration because it is time-barred from taking its case to federal court.

The attorneys made the allegation in a complaint filed in U.S. District Court of Nevada, after the city filed a claim with the Financial Industry Regulatory Authority in February. The city sought arbitration against Goldman Sachs over $210 million in bonds the bank helped the city issue to finance a downtown events center and railroad trench project, the Reno Gazette-Journal reported.

The special Auction Rate Securities market on which the bonds were issued seized up in 2008 after big banks stopped supporting it, and Reno now must pay 15 percent interest on the bonds plus millions in fees.

City officials have argued that Goldman Sachs didn't properly warn them about the risks .

"Instead, they blamed others," said attorney Joe Peiffer, who's representing Reno.

In the June 18 filing, Goldman Sachs argues that the city is improperly pushing the complaint through the Financial Industry Regulatory Authority organization. The private organization offers arbitration services for member banks, including Goldman Sachs.

The bank argues Reno isn't a member and can't use the services.

Goldman Sachs attorneys contend the city's request for arbitration is an attempt to circumvent the terms of its original agreement.

"The reason Reno filed its claims before FINRA is simple: All of its claims are plainly time-barred under the applicable statutes of limitation and fly in the face of its own disclosures, and would be subject to dismissal at the outset by this Court," Goldman Sachs attorneys wrote.

But Peiffer points to other cases where similar arguments from big banks have failed.

"There's a strong presumption in favor of arbitration," he said.