Woman Claims Her Money-Saving Bond Idea Was Crushed By Wall Street

Williams devised a new way to finance the construction of airport terminals.

April 26, 2013— -- In April 2005, Linda Grant Williams, a structured finance and real estate lawyer living in Bedford, New York, came up with a new way to finance the construction of airport terminals. Her way of financing and refinancing these deals could have saved airlines billions of dollars, she claims in a lawsuit filed in 2008.

The idea was to issue bonds with ratings based on the demand for passengers that fly in and out of busy U.S. airports like La Guardia, JFK or LAX. High and reliable flyer traffic would translate into top bond ratings and thus lower interest rates for the terminal bonds based on that passenger stream. This method contrasts with how airport bonds are issued now, based on the considerably lower credit ratings of the individual airlines that use the terminals.

Williams had used a similar idea in 1998 to finance sports stadiums. In 2005, while she was a partner at Pillsbury Winthrop Shaw Pittman, LLP, in Manhattan, the law firm devoted over a million dollars of its own time to vet her idea from a legal standpoint and also file a patent application on it, she maintains in her suit.

According to her lawsuit, that same year Williams and some of her Pillsbury partners met with major rating agencies like Standard & Poor's and Moody's. They also approached bankers at Citigroup--which devotes a chunk of its business to financing airport terminals--along with municipal finance experts at JP Morgan Securities and Goldman Sachs. Initially, they all expressed interest for her plan, recognizing that it would save the airline industry billions of dollars, she maintains in her suit.

But then, she claims, some strange things began happening.

A few weeks after meeting with Williams, Citigroup backed out, despite the fact that they were initially gung ho. In March, 2006, her law firm asked her to resign, although it did let her retain her patent, she claims in her suit.

Williams joined another law firm, Greenberg Traurig, a few months later. That company also thought her idea was worth pursuing, she maintains. She met with JP Morgan and Goldman Sachs, who initially loved the idea. But once again, something happened. A year after she joined Greenberg, the law firm refused to renew her contract. The banks would not return her call.

Williams was confused. Why did people keep backing out, and later ostracizing her, when everyone knew she was going to save the airline industry billions of dollars? And then she realized: The banks didn't want to save the airlines any money, because they would lose billions of dollars from secondary trading and derivative products tied to the traditional way of financing airport terminals.

"When Linda tried to pitch it there was a real internal conflict, there's no doubt about it," said John Greenlee, a financial advisor in San Francisco who brought Williams in to pitch her idea to Citigroup, and is familiar with the case. "They liked it at first--the rating agencies even approved it. But then they realized if they did it it would impact their bottom line."

In October, 2008, Williams filed suit against Citigroup Inc., JPMorgan Chase & Co. and Goldman Sachs & Co. for an as yet undetermined amount of money. (In October, 2012, she filed a separate suit against Barclays' Capital.)

According to her 2008 complaint, there was an "ongoing conspiracy, primarily among several Wall Street investment banks…" to boycott the use of her structure, "despite the fact that their own airport finance specialists have unequivocally acknowledged" that her structure could save the banks airline clients "tremendous amounts of money by virtue of the substantially lower interest rates they would pay on their [Airline Special Facility Bonds] bonds." (ASF bonds usually carry a higher interest rate than other government-issued bonds because the airline industry is so risky).

The suit alleges that the banks violated New York's antitrust law, the Donnelly Act, which prohibits, among other things, price fixing, bid rigging and group boycotting.

One insider brushed aside her allegations. "I think people did what we did—after badgering them relentlessly for a meeting, she came in, we listened politely, we smiled and nodded and said 'Very interesting', and she thought that was a sign of assent," said an industry professional who wished to remain anonymous. "But I remember thinking, 'That's not particularly novel and it's sort of been done before.'"

Finance pros say claims like this one are complex and often sink into a mire of what-ifs.

"There's a lot of different ways one can structure a transaction. It sounds sensible that you can come up with a structure that will create a savings for the borrower below what is available in the market," said Ed Grebeck, a market strategist in Stamford, CT . "However, the question is: Is that structure practical to implement? A lot of times that's when some of the best structures fall away. That may have happened here."

Williams declined to comment for this article. But in her suit she claims that she lost licensing and legal fees she would have earned had the banks applied her "innovative, now fully-patented structure to finance and refinance ASF Bonds." Further, the suit maintains that she has been "deprived of recognition for her important legal work and has suffered significant periods of unemployment and a devastating loss of income due to Defendants' interference with her senior positions at two international law firms."

That federal case was dismissed on the grounds that her case was not plausible. Undeterred, Williams filed another suit in New York State court, which was also dismissed. She immediately appealed.

And on March 19, 2013--nearly a year and a half later--the Appellate Division of New York's Supreme Court ruled that the case is allowed to proceed. The "allegations, which include statements alleged to have been made by defendants and other market participants… are sufficient to raise an inference of conspiracy," the appeals court ruled.

Citigroup, JP Morgan Securities, Goldman Sachs and Barclays declined to comment.

But in their Defendants' brief responding to her lawsuit, the banks' lawyer, Carmine Boccuzzi, noted that Williams did not allege that "any specific contract was actually breached by either of the two law firms that did not renew her contract."

Also, they added, that she clearly acknowledged that the "use of this structure would significantly harm the market, including bondholders…" and that her "own pleading demonstrates why any rational economic actor would have determined independently — and with no need of a conspiracy — that it was not in its business interest to adopt [Williams'] legal advice, and then exercise its right to not use her structure.''

In other words: They said that Williams clearly admitted it would cost secondary market bond traders and sellers of derivative products dependent on the high interest rate ASF bonds billions of dollars.

But that, William's lawyer, Michael Bowse, told ABC News, is precisely the point: That banks have a conflict of interest and don't want to save their airline clients money. The airline industry, in turn, is afraid to ruffle feathers, since it relies on the banks for loans.

"It does not make sense that the municipal and transportation finance groups within JP Morgan, Goldman and Citigroup would forego many hundreds of millions of dollars in bond issuances on which they could earn underwriting fees," said Bowse. "It doesn't make sense unless there is some other interest that the bank has--which we believe is that they make a lot of money off of these bonds because of the inefficient structure that would be fixed by Mrs. Williams' innovation."

Pillsbury Winthrop and Greenberg Traurig declined to comment. Boccuzzi, the lawyer for Citigroup, JPMorgan and Goldman, did not return phone calls to ABC News.

"Linda's aggressive but she's very good," said Greenlee. "I think her innovative ideas just rubbed certain people the wrong way."