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Detroit — A bond insurer on the hook for hundreds of millions of dollars in Detroit’s bankruptcy is desperate, underhanded and should apologize for accusing mediators of engineering a "fraudulent" grand bargain to rescue pensioners and preserve city-owned art, the city said late Monday.

The city’s legal team struck back one week after bond insurer Syncora Guarantee Inc. accused Chief U.S. District Judge Gerald Rosen and lawyer Eugene Driker of being “agenda driven, conflicted mediators who colluded with certain interested parties to benefit select favored creditors to the gross detriment of disfavored creditors.”

“Desperation is seldom pretty, and here it is particularly ugly as it has led Syncora into a strategy of distortions, half-truths, and outright falsehoods,” the city’s lawyers wrote late Monday.

The city’s filing continued a pattern of Detroit and Syncora trading toxic legal briefs on the eve of an Aug. 29 trial over whether the city’s restructuring plan is fair and feasible. The plan to shed more than $7 billion in debt, has won widespread support among unions, retirees and other creditors — but not Syncora.

The city’s bankruptcy lawyer said Syncora crossed the line in alleging a conspiracy among Detroit and mediators.

“It is nothing less than a desperate, last-ditch effort to use under-handed tactics to derail the plan, a plan which numerous classes of creditors have already accepted — including classes of financial creditors,” city lawyers wrote.

Syncora has consistently criticized the "grand bargain" plan to pump $816 million into Detroit’s pension funds. The money is a mix of private and public funds and would shield the Detroit Institute of Arts multi-billion collection from being sold.

Syncora and fellow holdout creditor Financial Guaranty Insurance Co. argue the art collection is worth more than the $816 million.

Detroit's art appraiser has valued the museum's 66,000 objects somewhere between $2.76 billion and $4.6 billion, while FGIC's art adviser pegged the collection's value at $8.5 billion.

Syncora called the grand bargain a “fraudulent transfer.”

“Contrary to Syncora’s name-calling, the Grand Bargain contains a perfectly legitimate settlement that is the product of arms-length negotiation among well-represented adversaries,” city lawyers wrote Monday.

Detroit’s legal team criticized Syncora for calling the city’s debt-cutting plan the result of a conspiracy that defrauds creditors.

“On its face, this claim is not only wrong, but is built on a foundation of falsehoods and distortions that appear calculated to generate publicity and to inflict damage on those working to settle the bankruptcy case rather than to serve any real litigation purpose,” city lawyers wrote.

The city also defended Driker, who was tapped by Rosen to be part of his mediation team last year.

Driker's wife is an emeritus member of the DIA's Board of Directors, which Syncora's attorneys called an "undisclosed personal interest in protecting the interests of the DIA."

Not so, the city said Monday.

Rosen disclosed the wife’s DIA role last fall.

Syncora’s allegation is “unequivocally false,” city lawyers wrote.

“Was it purely reckless, or was it intended to garner sensational press coverage, regardless of the cost to those who are honestly working to resolve the city’s bankruptcy case?” city lawyers wrote.

U.S. Bankruptcy Judge Steven Rhodes should strike Syncora’s allegations “for being reckless at best, if not willfully malicious,” city lawyers wrote.

“In addition, this court may wish to consider ordering Syncora and its attorneys to issue a formal public apology to Mr. Driker and Chief Judge Rosen, whose conduct and reputations have been falsely impugned,” city lawyers wrote.

Sanctioning Syncora’s lawyers also may be appropriate, they added.

rsnell@detroitnews.com

(313) 222-2028

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