Virgin Islands and Its Public Finance Authority File Suit against Buchanan, Ingersoll & Rooney and Bank of America over IRS Disallowance of $219 Million Dollar Bond Issue

The Virgin Islands Public Finance Authority (PFA) and the Government of the U.S. Virgin Islands (GVI) today filed a multi-million dollar malpractice lawsuit seeking punitive and compensatory damages for the failure of its law firm Buchanan, Ingersoll & Rooney PC, and its financial advisor, Bank of America, to properly advise the PFA and GVI in its issuance of over $219 million worth of bonds in 2006. The lawsuit alleges that Buchanan Ingersoll and Bank of America incorrectly advised the PFA and GVI that the bond issue would have been tax-exempt. During a recent random IRS examination, it was discovered that at least $80 million of the $219 million issue did not qualify for tax exempt status. The IRS demanded a $13.6 million dollar payment to resolve the claim.

The allegations in the suit, filed by Stone & Magnanini LLP on behalf of PFA and GVI, include malpractice against Buchanan Ingersoll, as well as claims for negligence, breach of fiduciary duty, and breach of contract against both Bank of America and Buchanan Ingersoll. The suit arises out of the IRS’s claim that $219 million of tax exempt municipal bonds the PFA issued in 2006 did not qualify for tax exempt status, despite the fact that bond counsel, Buchanan Ingersoll had issued an unqualified opinion letter that the bonds qualified for tax exempt status, and Bank of America had advised GVI to issue the bonds. The suit seeks to recover the $13.6 million payment to the IRS and all related costs including, among other things, professional fees and expenses and costs related to financing the IRS settlement.

The suit was filed in the United States District Court of the Virgin Islands on behalf of the PFA by David S. Stone, managing partner of Stone & Magnanini, as well as John Tober of The Tober Law Group, and Marie Thomas-Griffith and Samuel H. Hall, Jr. of Hall & Griffith, P.C.

“When advisors’ failure to provide proper advice damages their client, those advisors must stand behind them,” Stone said. “Our Complaint seeks to make Buchanan Ingersoll and Bank of America take responsibility for their actions which caused this result, rather than force the innocent citizens of the U.S. Virgin Islands to pay for their misconduct.”

The Government of the Virgin Islands has been financially penalized as a result of the poor advice of our former advisors,” said John P. de Jongh, Governor of the Virgin Islands and Chairman of the Public Finance Authority. “We have brought this lawsuit to ensure that the burden of this result is shouldered by those responsible and not by our local taxpayers.”

Commissioner of Finance Angel E. Dawson, Jr. who, as Executive Director of the Virgin Islands Public Finance Authority, has coordinated the effort from inception of the IRS audit stated that "with the filing of this lawsuit today, the Public Finance Authority and the Government of the Virgin Islands have demonstrated seriousness of purpose in honoring their pledge to the People of the Virgin Islands to pursue this matter vigorously. We anticipate a successful outcome."

A copy of the lawsuit is available upon request.

Stone & Magnanini, which was recently recognized as one of the top ten boutique law firms in the country by the National Law Journal, specializes in complex financial litigation. The firm recently obtained one of the top NY jury verdicts in a patent infringement case against technology giant AOL.