WASHINGTON—Three former financial services executives have been indicted for their participation in fraud schemes and conspiracies related to bidding for contracts for the investment of municipal bond proceeds and other municipal finance contracts.
The 12-count indictment was filed Tuesday in U.S. District Court in New York City. The indictment charges Dominick P. Carollo, Steven E. Goldberg, and Peter S. Grimm, all former executives at financial service companies or financial institutions, with participating in wire fraud schemes and separate fraud conspiracies at various time periods from as early as 1999 until 2006.
Basically they used inside info about competitors bids to insure they would win the buisness, if true its a classic case of bid -rigging:
Carollo, Goldberg, and Grimm obtained from CDR and other co-conspirator brokers information about the prices, price levels or conditions in competing providers’ bids, a practice known as a “last look,” which is explicitly prohibited by U.S. Treasury regulations. As a result of the information, various providers won investment agreements and other municipal finance contracts at artificially determined price levels. In exchange for this information, Carollo, Goldberg, and Grimm submitted intentionally losing bids for certain investment agreements and other contracts when requested, and, on occasion, agreed to pay or arranged for kickbacks to be paid to CDR and other co-conspirator brokers.
The indictment also alleges that Carollo, Goldberg, Grimm, and co-conspirators misrepresented to municipal issuers or bond counsel that the bidding process was in compliance with U.S. Treasury regulations. This caused the municipal issuers to award investment agreements and other municipal finance contracts to providers that otherwise would not have been awarded the contracts if the issuers had true and accurate information regarding the bidding process. Such conduct placed the tax-exempt status of the underlying bonds in jeopardy.
According to court documents, the efforts by Carollo, Goldberg, Grimm, and their co-conspirators to control and manipulate the bidding for investment contracts, and the execution of a variety of certifications that covered up their scheme, also obstructed the Internal Revenue Service’s (IRS) ability to monitor compliance with U.S. Treasury regulations and impeded the IRS’s ability to determine whether municipal issuers had correctly accounted for any money that was owed to the U.S. Treasury.
Its a safe assumption these won't be last indictments as the DOJ has a massive case in regards to the bid rigging that may have been endemic within the muni-bond community. As for Carollo, Goldberg, and Grimm, they were former GE executives and the accusations revolve around their work at GE and in the institutions after they left:
(Bloomberg)“The individuals charged today allegedly participated in complex fraud schemes and conspiracies to manipulate what was supposed to be a competitive process,” Christine Varney, assistant attorney general in charge of the Justice Department’s Antitrust Division, said yesterday in a statement.
The charges are a result of an antitrust investigation, begun more than three years ago, into the $2.8 trillion municipal bond market. The probe has drawn in more than a dozen banks and financial services companies, including JPMorgan Chase & Co., Bank of America Corp. and UBS AG, according to court records and regulatory filings.
The case centers on guaranteed investment contracts, known as GICs, that municipalities purchase with money raised by selling bonds, allowing them to earn a return until the funds are needed for schools, roads and other public works.
The U.S. Treasury Department encourages public bidding for GICs to ensure that localities are paid proper market rates. Prosecutors allege that bankers submitted sham bids and acted through the brokers to carve up the market for themselves, then compensated the brokers with kickbacks disguised as fees on derivative transactions.
Since October, three one-time executives of Los Angeles- based CDR Financial Products Inc. have been indicted, while three others pleaded guilty and agreed to cooperate with prosecutors. In May, a former UBS banker, who also agreed to cooperate, pleaded guilty, marking the first time a bank employee admitted to participating in the alleged conspiracy.
Yesterday’s indictment also involves Goldberg and Carollo’s work after they left GE. Goldberg went to Financial Security Assurance Holdings Ltd., a former unit of Brussels-based Dexia SA, while Carollo went on to work for Royal Bank of Canada.
As for GE, their had been rumors swirling around them late last year they were somehow linked to the muni-bond scandal and it appears GE was trying to settle (with the SEC at least) as a way to head off the worst. In regards to penalties, they could end up being quite swift for the gentleman in question:
(BondBuyer) Goldberg is charged with eight counts of conspiracy and two counts of wire fraud. Grimm is charged with five counts of conspiracy and one count of wire fraud. Carollo is charged with four counts of conspiracy and one count of wire fraud.
The alleged fraud conspiracies each carry a maximum penalty per count of five years in prison and a $250,000 fine. The wire fraud charges each carry a maximum penalty per count of 20 years in prison and a $1 million fine.
The maximum fines for each of the offenses may be increased to twice the gain derived from the crime or twice the loss suffered by the victims of the crime, if either amount is greater than the statutory maximum fine, U.S. attorneys said.