When Herman Lewis McMillan sued New Jersey for $18 trillion in 1975, officials preparing the state's $50 million bond issue did their duty.
"A suit...has been filed by a state prisoner seeking damages of $17,958,968,735,470," they soberly warned investors in the litigation section of the official statement.
"In the opinion of the attorney general of the state, the outcome of this suit cannot be predicted," the three-line item concluded.
But even though the state could not pin down whether it risked a judgment 6,400 times larger than that year's entire budget, the bonds still sold without a hitch.
Likewise, bond buyers generally ignored Louisiana's 1987 confession that its prison inmates are a litigious bunch as well.
Officials there counted up the 1,503 prisoner lawsuits pending before a 1987 bond sale and told the market to beware the state's total exposure of "approximately" $69,502,392,054--and 27 cents.
But Salomon Brothers bought the bonds at a rate that suggested Louisiana's busy inmates had not made much of an impression. Once again, investors apparently figured out the suits were going nowhere.
A recent look at hundreds of randomly selected official statements found wide variety in their litigation sections.
The language ranges from stock phraseology tersely assuring investors of the issuer's "no litigation" status to page-long narratives describing the odors emanating from long-abandoned dumps. And the content, while sometimes of real importance, often just raises the question of why anyone wanted to include it.
That brings up a second question. At a time when most analysts and regulators are calling for the broadest possible disclosure among municipal issuers, is it possible that sometimes less is more?
Take the case of Daniel Rappa. Mr. Rappa ran a failed bid for the U.S. House of Representatives in 1990 and is suing the city of Wilmington, Del., for allegedly pulling down his campaign signs. He says that's the reason for his 9-to-1 margin of defeat, and he wants the city to reimburse him for his campaign expenses.
"If plaintiff is successful, the city's damages claimed by plaintiff could exceed $100,000 in addition to attorneys' fees," a recent official statement from Wilmington advised.
But the bonds would not be affected even if Mr. Rappa wins his suit, so there is no reason to mention it in the official statement, said John L. Kraft, a partner at Kraft & McManimon, a New Jersey bond counsel firm.
"Too much disclosure can be as bad as not enough disclosure," Mr. Kraft said, explaining that diluting an official statement's litigation section with immaterial or obviously frivolous claims could discourage investors from taking the important lawsuits seriously.
A total of 14 lawsuits are detailed in Wilmington's official statement, including a $5,000 exposure over allegations that the city damaged a shipment of kiwi fruit upon its recent arrival at the port of Wilmington.
The city's bond counsel, Timothy Frey of Saul, Ewing, Remick & Saul, did not return phone calls.
Market watchers say some of the more oddball disclosures that have been made over the years can be traced to New York City's fiscal crisis in the mid-1970s. The near-default of the city took many investors by surprise, and prompted complaints that every bit of information should be made available in official statements, in order to let investors decide for themselves whether a particular fact is important.
Everyone agrees a lawsuit needs to be disclosed if it has the potential to affect the credit of outstanding bonds.
Bond counsel point, for example, to lawsuits against the Washington Public Power System and challenges to several states' school financing systems as instances where the litigation section can take on real significance.
In a recent Pennsylvania general obligation deal, Fitch Investors Service pointed out that the state faces almost $1 billion in potential legal exposure, and highlighted the lawsuits as one risk to the credit.
One of the suits, a $700 million case contesting the constitutionality of the state's bank shares tax, could have serious implications for Pennsylvania if the plaintiffs are successful, explained Claire G. Cohen, executive managing director at Fitch.
"It would really make a difference if they have to put out $700 million," Ms. Cohen said. "It's unlikely it will be $700 million, but you can't prove that."
Nicole D. Anderes, a manager of research at Roosevelt & Cross, said that kind of litigation disclosure should not be dismissed lightly. She said there may be several such cases sprinkled among the other more frivolous listings--details of citizens tripping on the steps of City Hall or disgruntled former municipal employees suing over the loss of their jobs, for example.
"But there's some litigation you have to take seriously," Ms. Anderes said.
One way investors decide if a lawsuit is a legitimate credit concern is to look to the rating agencies for guidance. George K. Leung, managing director of state ratings at Moody's Investors Service, said that at any given time most states have litigation outstanding that could have a material impact on finances if it is decided against the state.
"Some are more significant than others," Mr. Leung said. But he added that even significant cases are rarely factored into rating decisions while they are still pending, because the final outcome of any litigation is impossible to predict.
"We just recognize that the lawsuits exist," he said. "At the point where it's a real liability, after an adverse decision for example, then we discuss with the state how they will react."
In Los Angeles, city officials are still tallying up the monetary costs resulting from riots that followed a not guilty verdict in the city's closely watched Rodney King police brutality case.
But even as the damage is being calculated, bond counsel writing the city's next official statement will have to draft language explaining what Los Angeles thinks its potential exposure from the rioting will be.
The litigation section for a December official statement from the city, written before the verdict was reached, makes no reference to the criminal case that ultimately touched off the riots. Instead, a one-paragraph listing, the 16th of 23, explains that Los Angeles is a defendant in a civil rights suit brought by Mr. King.
"It is probable the city will have some liability to the plaintiff," the official statement says.
In less notorious cases, bond counsel sometimes reveal disputes underwriters would just as soon play down.
During New York City's February general obligation sale, for example, Bankers Trust made two appearances in the official statement: once on the syndicate list as an underwriter and again on page 65, where the litigation section notes that the bank has sued the city over a disputed $4 million tax payment.