May 19 (Bloomberg) -- A former Wall Street banker with UBS AG pleaded guilty to participating in a conspiracy to rig bids and pay state and local governments below-market returns on investment deals, the Justice Department said.
Mark Zaino, who worked on the Zurich-based bank’s U.S. municipal-bond and derivatives trading desk from 2001 until 2006, pleaded guilty to fraud and conspiracy charges filed in U.S. District Court in New York, the Justice Department said today. The government said Zaino ran sham auctions in return for kickbacks and funneled illicit payments to CDR Financial Products Inc., another firm that handled bids for such deals.
Zaino’s plea marks the first time that an employee of a Wall Street bank has admitted to participating in the conspiracy to deliver added profits on investment deals at taxpayers’ expense.
The conspiracy stretched from California to Pennsylvania and included more than 200 deals involving about 160 state agencies, local governments and non-profits, Bloomberg News has reported, based on government records filed in connection with the CDR case. UBS was among the 16 banks that participated, according to a Justice Department list of co-conspirators that was filed in court on March 24 and sealed.Fifteen other banks took part, including Bank of America Corp., Citigroup Inc. and JPMorgan Chase & Co., according to the list.
‘Inflated Fees’
“Kickbacks in the form of inflated or unearned fees were paid to Zaino’s employer and its parent financial institution in exchange for assistance in controlling the bidding process,” the Justice Department said in today’s statement.
Mr. Zaino has agreed to co-operate with authorities and as for the fees being used as kickbacks:
Before one bid in August 2002 to invest the proceeds from bonds issued by Missouri’s Health and Educational Facilities Authority, Zaino, CDR employees and a banker at Financial Security Assurance agreed on how much FSA would pay to win the bid and the amount of CDR’s kickback, according to the guilty pleas and other court records. Four days after FSA won the bid, UBS paid CDR a $475,000 kickback disguised as a fee to CDR for arranging a swap between UBS and FSA.
Not a bad gig if you can get it. In other news Florida has decided to expand investigations into the activities of CDR:
Florida's investigation into bid rigging in municipal bonds widened this week with reports that several of the country's largest banks may have been involved in a nationwide conspiracy.
According to federal indictments, the CDR Financial Products of Beverly Hills, Calif., gave false information to municipalities and fed information to bankers allowing them to win with lower interest rates than they were otherwise willing to pay.
Bloomberg News reported that the banks took their illegal gains from the additional returns on Guaranteed Investment Contracts and paid CDR kickbacks. Among the banks named were: Citigroup, JPMorgan Chase, Lehman Brothers and Wachovia.
The alleged conspiracy included more than 200 deals involving about 160 state agencies, local governments and non-profits involving tens of billions of tax dollars.The Florida Attorney General's Office, through spokeswoman Ryan Wiggins, said, "We have been coordinating with other states on a multi-state investigation into this issue since April 4, 2008."
In 2008, Attorney General Bill McCollum issued an 11-page document called "Antitrust Civil Investigative Demands" to 38 firms and subsidiaries, including Merrill Lynch, Bank of America, JPMorgan Chase, AIG SunAmerica Life Assurance Co. and GE Funding Capital Market Services Inc.
The AG's office said that Florida asked for information about every GIC and municipal bond derivative sold during a 10-year period, including all payments made to any persons in connection with these types of transactions and the profits realized from their sales.
Considering Gulf Breeze Florida has been the seen of many CDR activities double checking its activities seems rather rational.
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