WASHINGTON (AP) -- A politically connected Beverly Hills, Calif., firm and two of its executives were indicted Thursday for what prosecutors say was a bid-rigging scheme in the municipal bond business.
The charges in the nine-count indictment filed Thursday in Manhattan federal court against CDR Financial Products Inc. are the first resulting from the Justice Department's probe of the municipal bonds industry. CDR has also come under scrutiny for its ties to New Mexico Gov. Bill Richardson.
The indictment alleges that two CDR executives and one former executive from the firm engaged in bid-rigging conspiracies in which CDR was hired by public entities that issue municipal bonds to act as their broker and conduct a supposedly competitive bidding process.
CDR is also known as Rubin/Chambers, Dunhill Insurance Services Inc.
Prosecutors say the company's owner and president, David Rubin, vice president Evan Zarefksy and former chief financial officer Zevi Wolmark took part in two wire fraud schemes. The three are also charged with obstructing the IRS.
Because such bonds are tax-exempt, the competitive bidding process is regulated by the IRS.Prosecutors said the company secretly manipulated the bidding process to enrich themselves and the bidding companies at the expense of the municipalities, the IRS or both.
Under the scheme, CDR would arrange in advance which company would win a particular bid for bond business and arrange kickbacks to CDR in the form of inflated fees, authorities said. If convicted of the most serious charge against them, the three men face a maximum prison sentence of 20 years.
The company could face a maximum fine of $100 million for the bid-rigging charge.
With further actions against Chase also in the works and the European investigation, it looks like The 46 is still going to be pretty damn busy. By the way, what happens if Rubin and associates begin to testify about all the Democrats they had dealings with?
Update from Bloomberg:
“The Justice Department is committed to protecting the competitive process and will hold accountable individuals and companies who participate in illegal and anticompetitive conduct,” Christine Varney, the Assistant U.S. Attorney General who heads the antitrust division, said in a statement.
Also indicted were Zevi “Stewart” Wolmark, CDR’s former chief financial officer and managing director, and Evan Zarefsky, CDR’s vice president. The charges are the first to result from a more than three-year investigation into the municipal bond market that has drawn in more than a dozen banks, insurers and local government advisers.
Allan Ripp, a spokesman for CDR, said the firm hasn’t had a chance to fully review the complaint. He dismissed allegations that the firm participated in a conspiracy. Rubin’s attorney, Donald Etra, said his client will defend against the charges.
‘Nothing Wrong’
“We believe the indictment has no merit,” Etra said. “The bottom line is that David Rubin did nothing wrong.”The investigation and the charges filed against CDR and its employees center on so-called guaranteed investment contracts, which local governments buy with the proceeds of municipal bonds. Under the deals, banks and insurance companies agree to pay a fixed rate of return until the money is needed to pay for construction projects.
The allegations are reminiscent of the yield-burning scandal of the 1990s, when Wall Street banks overcharged local governments for Treasury bonds they purchased with their own bond money. Securities firms agreed to pay more than $170 million to settle SEC allegations of yield burning.
The Justice Department’s investigation into bid-rigging is ongoing. Bank of America Corp. in 2007 agreed to cooperate with the department in exchange for leniency. Others, including JPMorgan Chase & Co. and UBS AG, have disclosed they may face charges by the Justice Department or the Securities and Exchange Commission in connection with the investigation.
A conspiracy to fix prices on the investments would have cost taxpayers by giving them lower returns than they would receive in a competitive auction. It would also cost the federal government, whose regulations require issuers of tax-exempt bonds to pay as taxes much of what they earn on the investments.
‘Illegal Rigging’
“This case is fundamentally about collusion, the illegal rigging of a purportedly competitive bidding process,” Joseph M. Demarest Jr., assistant director in charge of the Federal Bureau of Investigation office in New York, said in a statement. “The result was lower rates of return on the investment of bond proceeds for the state and local governments that hired CDR.
And so it begins.............
ReplyDeleteBut remember "this is old news", yeah, right!