Whistleblower claim vs. banks dismissed.

Byline: Eric T. Berkman

A private individual whose forensic analysis of publicly available data concluded that financial institutions were fraudulently setting interest rates on certain municipal bonds could not bring a qui tam action on the commonwealth's behalf, a Superior Court judge has ruled in a case of first impression.

Relator Johan Rosenberg, a onetime financial advisor from Minnesota, used proprietary software to analyze thousands of transactions. He claimed the results indicated that a number of banks, including defendants JPMorgan Chase, Citigroup, Merrill Lynch and Morgan Stanley, acting as "remarketing agents" for a type of tax-exempt municipal bonds known as variable rate demand obligations, or VRDOs, colluded to set interest rates at an artificially high level on the bonds.

In doing so, Rosenberg alleged, the banks cost the commonwealth millions of dollars in excess interest and fees while misrepresenting that they had met their obligation to reset and remarket VRDOs at the lowest possible rates. He claimed that violated the state False Claims Act.

The defendants argued that Rosenberg had no claim because he did not qualify, within the meaning of the False Claims Act, as an "original source" of the information upon which he based his allegations.

Judge Mitchell A. Kaplan, sitting in the Business Litigation Session, agreed.

"While the issue is one of first impression under the Massachusetts version of the Federal False Claims Act, this court joins the majority of federal courts in holding that, under these circumstances, the factual allegations in the complaint are substantially the same as publicly disclosed transactions, and the relator is not the original source of the information alleged," Kaplan wrote in granting the defendants' motion to dismiss. "In consequence, the Relator's qui tam complaint fails to state a claim based on the Act's public disclosure bar."

The 27-page decision is Commonwealth ex rel. Rosenberg v. JP Morgan Chase & Co., et al., Lawyers Weekly No. 09-076-19. The full text of the ruling can be found here.

Legislative intent

Attorneys for the relator and the defendants either declined to comment or did not respond to interview requests.

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"It's a well-reasoned decision in an area where we haven't had many state court Massachusetts decisions."

Ian D. Roffman, Boston

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But Boston lawyer Ian D. Roffman, who handles securities disputes, described the ruling as a "strong decision."

"It puts...