David Rubin, founder of CDR Financial Products Inc., and two colleagues on Friday pleaded not guilty to criminal antitrust, wire fraud and other charges stemming from an alleged conspiracy to rig bids for municipal investment agreements and derivatives contracts for kickbacks.
A federal magistrate judge in Manhattan set bail for Rubin at far less than U.S. attorneys requested.
In remarks that likely foreshadow the arguments that will be made against the charges, Michael McGovern, a partner at Ropes & Gray LLP representing Stewart Wolmark, CDR’s former chief financial officer and managing director, claimed that the government’s portrayal of CDR as an entity at the center of a massive bid-rigging conspiracy is far-fetched.
The case is the first to be brought in the Justice Department’s widespread probe of anticompetitive practices in the muni market, under which 30 to 40 firms and a number of individuals were subpoenaed for information.
But McGovern asked, if there’s a widespread conspiracy, why did the government not name individuals from any other firms? He also suggested that a five-year statute of limitations will lead to the removal of some of the charges.
He said the limitation was never meant to run after the interest on bonds expires, which could be 30 years after issuance.
Saying she did not want to try the case at arraignment, Rebecca Meiklejohn, the lead Justice Department attorney on the case, nevertheless warned the government has “a very strong case” based on multiple witnesses who agreed to plead guilty and testify against CDR, including former employees who worked with the defendants. She also said the government has hundreds of documents and recorded conversations that support its arguments.
Meiklejohn sought bail of about $25 million for Rubin, arguing that the government believes he owns far more than the $15 million to $20 million in assets his attorneys have reported, and that he is a flight risk.
Meiklejohn told the judge that the government is “ignorant” of the full scope of Rubin’s assets. She warned that he may have multiple passports because he is a naturalized American citizen and noted that he often flies to Israel, as recently as last month, where he appears to own a house and visit a son.
Many muni market participants following the probe, which began in 2005, have speculated that Rubin would flee to Israel, where, as a Jew, he has a right of return that may shield him from extradition.
But the judge, Theodore Katz, was at least partially swayed by the arguments of Richard Beckler, an attorney at Howrey LLP, and Donald Etra, who has his own practice in Los Angeles, that Rubin poses no flight risk. They said he surrendered the only passport he possesses within hours of learning of the Oct. 29 indictment. Beckler said it is “unreasonable” to suggest that Rubin, who was born in Mexico City but naturalized in the United States when he was two, would flee to Mexico.
They also took issue with the suggestion that Rubin had been less than fully candid with the government, stressing that he is very active in his Los Angeles community where he has a large family, including seven children and a wife who was recently diagnosed with pancreatic cancer.
In addition, they said that Rubin poses no danger to the public, with Etra pointing out that the Justice charges “go back away” to deals done in the early 2000s and that “neither Rubin nor CDR do these types of transactions anymore.”
Etra also noted that Rubin chose not to flee the country even though CDR received a target letter from the Justice Department in late 2007 and learned about two months ago that the indictment was about to be handed down.
Ultimately, the judge set bail for Rubin at just $5 million, of which $250,000 had to be posted up front in cash and an additional portion tied to the equity in his California home.
Katz also set bail for Wolmark at $1.5 million, even though Meiklejohn had asked for more, in part because Wolmark made well over $1 million at CDR. She did specify the amount of bail but said the government does not believe it has a full accounting of his finances.
Katz appeared to be swayed in part by arguments that Wolmark has 10 children scattered throughout the country and sickly parents in Memphis, and poses little flight risk. McGovern said that Wolmark, who is a dual citizen of Israel and the United States, surrendered both passports and strongly disputed the argument that he was not fully candid with government officials about his finances, suggesting there was simply a communication problem between Justice and the pre-trial officials who work for U.S. courts.
The third defendant, Evan Andrew Zarefsky, a vice president at the firm, received the most lenient arrangement, with Katz allowing him to sign an unsecured bond for $250,000. Unlike Rubin and Wolmark, Zarefsky will not be supervised by the court system pending trial.