(Bloomberg) An indictment, guilty pleas, recorded calls and e-mails reveal how bankers and financial advisers paid kickbacks and skimmed money from public funds—corrupting the $2.8-trillion municipal bond market.
A telephone call between a financial adviser in Beverly Hills and a trader in New York was all it took to fleece taxpayers on a water-and-sewer financing deal in West Virginia. The secret conversation was part of a conspiracy stretching across the US by Wall Street banks in the $2.8-trillion municipal bond market.
The call came less than two hours before bids were due for contracts to manage $90 million raised with the sale of West Virginia bonds. On one end of the line was Steven Goldberg, a trader with Financial Security Assurance Holdings Ltd. On the other was Zevi Wolmark, of advisory firm CDR Financial Products Inc. Goldberg arranged to pay a kickback to CDR to land the deal, according to government records filed in connection with a US Justice Department indictment of CDR and Wolmark.
West Virginia was just one stop in a nationwide conspiracy in which financial advisers to municipalities colluded with Bank of America Corp., Citigroup Inc., JPMorgan Chase & Co., Lehman Brothers Holdings Inc., Wachovia Corp. and 11 other banks.They rigged bids on auctions for so-called guaranteed investment contracts, known as GICs, according to a Justice Department list that was filed in US District Court in Manhattan on March 24 and then put under seal. Those contracts hold tens of billions of taxpayer dollars.
The workings of the conspiracy—which stretched from California to Pennsylvania and included more than 200 deals involving about 160 state agencies, local governments and non-profits—can be pieced together from the Justice Department’s indictment of CDR, civil lawsuits by governments around the country, e-mails obtained by Bloomberg News and interviews with current and former bankers and public officials.
“The whole investment process was rigged across the board,” said Charlie Anderson, who retired in 2007 as head of field operations for the Internal Revenue Service’s tax-exempt bond division. “It was so commonplace that people talked about it on the phones of their employers and ignored the fact that they were being recorded.”
In a nutshell CDR is accused of giving local municipalities false information and then funneled insider info to banks. With the extra profits from these ill gotten gains the banks would then allegedly kickback the money to CDR. In some cases such as Jefferson County Alabama, the results were disastrous. Of course some of these municipalities it was more then getting false information, it was also alleged influence peddeling that allowed these deals to go foward.
The heart of the case, the informant from BOA:
A key witness in the government’s case is a former banker whom the government hasn’t named, according to a civil lawsuit filed by Baltimore, Maryland, and six other municipal borrowers against Bank of America, JPMorgan and nine other banks. The banker is providing evidence against his peers.
The witness, who was employed by Bank of America Corp. starting in 1999, has laid out the inner workings of the scheme in confidential meetings with investigators, according to the civil lawsuit.Bank of America, based in Charlotte, North Carolina, has also been providing prosecutors with evidence since at least 2007. The bank voluntarily reported its own illegal activity and agreed to cooperate with the Justice Department’s antitrust division, according to a press release from the company.
In exchange, the government promised in an amnesty agreement not to prosecute the bank. Bank of America spokesman Shirley Norton in San Francisco said in an e-mail the firm is continuing to cooperate.
And to think they created a task force to deal with these issues.