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The story harks back to the auction-rate securities crisis that erupted in 2008. Then, ill-fated ARS were hedged with swaps pegged to a percentage of the London Interbank Offered Rate, which is supposed to be a measure of how much banks charge each other for short-term loans.

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The muni borrower agreed to pay a bank a fixed rate and receive a floating rate, calculated as a percentage of Libor, which was supposed to match the rate on the auction-rate security.

“So that as rates rose and their debt costs went up, the floating rate they received on the swap would correspondingly go up — that’s the expectation,” Gruer said. “And they would be left with a net synthetic fixed rate that they could budget with reasonable certainty.”

But during the auction-rate security crisis — precipitated by failed auctions — ARS yields soared far more than Libor did.

And muni issuers essentially got stuck paying the fixed rate to their bank counterparty as well as the spread between the ARS and Libor to their investors.

In doing so, they lost money, according to Peter Shapiro, managing director of Swap Financial Group LLC in South Orange, N.J.

“If Libor were artificially depressed because of manipulation by the banks, then these issuers received less under their swaps than they should have,” he said. “So, they were damaged. And those damages would likely run into the tens of millions of dollars.”