Bloomberg reported Friday that Merrill Lynch agreed to pay Springfield, Mass. $13.9 million to settle a dispute over mortgage-related CDOs it sold the city. Merrill said it agreed to refund the city’s money after finding that the original purchase was made without the city’s consent. From Bloomberg:

Springfield bought its CDOs between April and June of last year from Merrill, according to city records. The value of those securities fell to $1.3 million in November … Merrill, the world’s largest brokerage, sold Springfield investments in S Coast FD V CDO, TABS CDO, and Centre Square CDO, according to city records. “After carefully reviewing the facts, we have determined the purchases of these securities were made without the express permission of the city,” Merrill said in a statement. “As a result, we are making the city whole and we have taken appropriate steps internally to ensure this conduct is not repeated.”

Springfield, obviously, isn’t the only local government that has lost plenty on CDO investments. While I realize that Merrill did the right thing here, and probably canned whoever executed the original trade, I can’t help but wonder if other cities aren’t going to start looking for remuneration — even if this is an isolated incident. After all, if Cleveland can decide it’s worthwhile to sue essentially the entire mortgage industry under a “public nuisance” ordinance, I’d have to think that anything is pretty much possible at this point.