A judge dismissed a years-long lawsuit against Jefferies and other parties over allegations that they inflated interest rates for military housing operators.
A group of military housing developers brought federal Racketeer Influenced and Corrupt Organizations (RICO) claims in a 2017 lawsuit against Jefferies, Ambac Assurance Corporation and former employees of the firms. After months of discovery and 90 depositions, a judge in the Southern District of New York granted the defendants’ request to dismiss the claims on statute-of-limitations grounds.
It’s a win for Jefferies and the other defendants. The judge, however, did not come down on whether an alleged scheme to inflate interest rates actually occurred, leaving the veracity of those claims without a judicial opinion.
Lawyers for Danny Ray, a named defendant who served as a vice president and managing director at the originator and later Jefferies, denied that anything improper occurred with the loans.
“Years of discovery, millions of pages of documents and deposition testimony prove beyond any reasonable dispute that there was zero merit to any of the allegations,” said Amer Ahmed, a partner at Gibson, Dunn & Crutcher, who represented Ray. “[These developers] knew what they bargained for and they got what they wanted.”
The military housing operators that brought the RICO suit were each connected to private developers Corvias Military Living, Balfour Beatty Communities, Clark Realty Capital and Michaels Military Housing. An attorney for the plaintiffs did not respond to a request for comment.
The private developers were building housing for the military between 2002 and 2010. They worked with JLL to find financing, eventually selecting General Motors Acceptance Corp., which eventually transferred projects to Jefferies.
Before the loans closed, lenders securitized and sold bonds on them. Despite assuring plaintiffs that the bonds and certificates would be sold at market rate, plaintiffs said the lenders instead sold the bonds at an above-market rate. For lenders, that meant an immediate profit off the credit spread. For borrowers, they say that meant higher interest rates to pay.
The plaintiffs separately alleged that lenders had an exclusive relationship with Ambac for credit enhancement and guaranty insurance on the loans. That collusion meant Ambac could charge above-market rates for those services. After the lenders were asked to set up competitive bidding for the credit enhancement and guaranty insurance, they instead colluded with and signed hidden agreements with Ambac.
Separately, plaintiffs accused the lenders of charging undisclosed and improper fees.
The suit was first filed in California in 2017 but was eventually transferred and decided in the SDNY. The court said that the military housing developers knew or should have known about the alleged interest rate scheme before the end of the summer in 2013, meaning they had missed the four-year statute of limitations for RICO claims.
Two of the original defendants, Ambac and a supervisor at the firm, were removed from the suit before the decision after an agreement with the plaintiffs.
JLL, Jefferies, their attorneys and an attorney for Ambac did not respond to requests for comment about the suit or the allegations.
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