Texas jury awards mutual fund firms $84 million in suit

October 21, 1994|By Bloomberg Business News

HOUSTON -- A Houston jury has awarded more than $84 million to nine mutual fund companies, including

Baltimore-based T. Rowe Price Associates, in a lawsuit over tax-free bonds used to finance private prisons in Texas.

The jury in U.S. District Court in Houston found that private prison developers, working in concert with the now-defunct investment banking firm of Drexel Burnham Lambert, violated federal securities laws in the 1989 sale of $74 million of bonds to finance a chain of six private jails.

The mutual fund companies, which also included Merrill Lynch & Co. and the Franklin Group, invested in the bonds, which lost much of their value when the prisons didn't meet financial projections.

The jury returned a verdict for $79 million in actual damages on Wednesday and tacked on another $5 million in punitive damages yesterday.

Investors alleged that bond documents never disclosed that the prisons didn't meet state standards, or that the developers stood to collect $4.8 million in fees for building the prisons.

The bondholders sued many of the people and firms involved with the project in 1992.

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