The U.S. Justice Department is mulling a civil suit against the Louisville Metropolitan Sewer District for alleged violations of a federal securities program, according to a Bloomberg report.
The federal inquiry stems from a 2014 U.S. Treasury Department claim that Louisville’s MSD exploited the federal State and Local Government Series Securities program.
The program helps municipalities comply with federal regulations limiting yields gained from invest proceeds of tax-exempt bond issues.
The incentive allows local and state governments to turn investments into revenue that can help build infrastructure.
“Some local municipalities, and not just in Kentucky, would borrow at a tax subsidized rate and then invest at a higher rate and make a profit,” said Chris Tobe, author of financial book “Kentucky Fried Pensions.”
A MSD spokesman told The Courier-Journal in 2014 that former MSD investors bought and sold securities every few days to take advantage of declining interest rates.
An attorney for MSD told WFPL Thursday that the U.S. Department of Justice is obligated to investigate if federal laws were broken.
“And if so, act upon that through the filing of a lawsuit,” said attorney Iden Martyn.
MSD is “hopeful and confident” the feds will understand MSD’s actions were “reasonable and proper,” Martyn said.
That would be the best case scenario, Martyn added.
On the the opposite end of the spectrum, the government could allege wrongdoing and file suit, Martyn said.
In a bond-offering document filed in August, MSD officials noted that MSD and the feds were exploring a resolution without litigation.
At the time, MSD “cannot predict the outcome, including potential monetary consequences, of the (Department of Justice) investigation,” the document stated.