Richmond sues JPMorgan, Royal Bank of Canada over swap deals

The City of Richmond has filed a lawsuit against JPMorgan Chase, the Royal Bank of Canada, and its former financial advisors, alleging that they engaged in illegal derivative contracts that cost the city tens of millions of dollars.

The suit, filed on March 17, targets the Public Resources Advisory Group and The Majors Group alongside the two banks. The city claims the deals, structured as interest rate swaps, violated California law, failed to provide any public benefit, and diverted critical resources from essential services.

Richmond Mayor Eduardo Martinez said the lawsuit seeks to recover funds lost in the transactions. 

“We want JP Morgan Chase and RBC to make the city whole by paying back the money they took from the city in illegal payments,” Martinez said.

Financial advisor George Majors defended The Majors Group’s role, stating that the city had been “expertly and faithfully advised” and called any claims to the contrary “baseless.”

The lawsuit asserts that the financial agreements in question violated state law, but Majors noted that reputable law firms had provided legal analyses supporting their validity.

“I am not an attorney and therefore did not, and simply could not, address matters of law in my financial advisory capacity,” Majors said.

The lawsuit follows years of scrutiny over Richmond’s financial dealings. Between 2009 and 2014, the city entered into complex swaps and derivatives contracts tied to municipal bonds with values exceeding $454 million. When the city terminated those contracts and refinanced with conventional bonds, it was required to pay more than $66 million in termination fees.

A 2022 review by Charles River Associates raised concerns about the financial advice Richmond received. The independent compliance and regulatory review found that the original proposals and representations by financial advisors “warrant further scrutiny.” Based on these findings, the city sought outside legal counsel to evaluate potential claims and pursue recovery for professional malpractice.

Under a legal services agreement approved by the Richmond City Council in 2024, the city retained Keller Rohrback L.L.P. and former U.S. Rep. R. Bradley Miller on a contingency basis. The attorneys will receive 25 percent of any funds recovered, with all litigation costs also reimbursable from the net recovery. Richmond will not pay legal fees if the case is unsuccessful.

“The laws are there to protect the public interest,” Miller said. “The legal requirements are designed to prevent waste and the improper use of public funds and to ensure transparency and accountability.”

The city argues that the derivative transactions violated state law, which limits municipal swap agreements to specific circumstances tied to highly rated bonds. Richmond contends that the agreements did not meet these legal requirements, rendering them void.

The lawsuit also claims the swaps contributed to the city’s financial struggles, leading to credit downgrades and increased borrowing costs.

“For the banks, the tens of millions of dollars that Richmond paid on these derivatives amounted to money for nothing,” said Councilmember Claudia Jimenez.

Last year, former Richmond Mayor Tom Butt told Grandview that virtually all financial advisors were promoting swaps as a potential opportunity to save a lot of money several years ago.

“Typically, they recognized the risks, but advised the potential financial rewards were probably worth it,” Butt said. “Many public agencies started utilizing swaps, including Richmond. It turned out to be a bad experience, and public agencies have now largely abandoned swaps for more predictable forms of debt management.”

Butt said the pension problem started in the mid-1990s when state unions came up with calculations showing that defined benefit plans could be increased without affecting funding. 

“When the state capitulated, local unions followed, including those in Richmond. The problem is that the funding for these plans comes from PERS investments, and PERS, run by union reps on its board, has overestimated returns on its investments, resulting in shortfalls that have to be made up from increased city contributions,” Butt said.

The details of the lawsuit were not immediately available. A spokesperson from JPMorgan Chase declined to comment. The Royal Bank of Canada and the Public Resources Advisory Group did not immediately respond to requests for comment.

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