Three current and former executives of CDR Financial Products will stand trial next February for their alleged use of rigged bids and deception to rip off state and local governments.
Judge Victor Marrero for the U.S. District Court Southern District of New York set a trial date of Feb. 7, 2011, for CDR founder David Rubin, chief financial officer Zevi Wolmark, and vice president Evan Zarefsky.
A grand jury indicted the defendants in October based on a U.S. Justice Department investigation into how CDR Financial parceled out municipalities’ business to banks.
During court proceedings Friday, the department told Marrero it intended to hand over damning evidence on CDR’s involvement in 249 municipal deals by Feb. 1 or Feb. 2.
The evidence concerns what happens to money between when municipalities borrow it and when they spend it.
Little of the roughly $400 billion municipalities borrow through the bond market annually is spent immediately. More often, the municipalities raise the money through bond sales and map a schedule for how and when they plan to spend it.
In the meantime, they deposit the money with a bank and earn interest on it.
CDR Financial Products acted as a broker helping municipalities find the right bank to invest the money with.
Normally this process entails banks interested in the business offering an interest rate on the money based on the size of the investment and when the municipality plans to spend it.
According to the indictment, the Justice Department accuses CDR of rigging the bids so banks could win the deals at lower interest rates.
The company accomplished this in some cases by telling banks what interest rate would be sufficient to win the bid, the federal government alleges.
In other cases, CDR would coax some banks to submit deliberately losing bids in order to favor a predetermined winner. In exchange for their help, the losing banks would be awarded business from other rigged deals, according to the indictment.
For the company’s role in rigging the bids, the government alleges CDR collected disguised kickbacks in the form of “hedge fees” from the winning banks.
After federal prosecutors suggested a trial date next January, lawyers for the defendants argued they may need more time. The Justice Department is about to hand over roughly five terabytes of information, including recordings, e-mails, and other documents.
To put five terabytes into perspective, it is roughly the amount of memory needed for an mp3 file that plays continuously for 13 years.
Marrero said he was sympathetic to the amount of work involved, but he had a practical concern.
Prosecutors and defense attorneys agreed the trial would take about eight weeks. Marrero said it is not often his court has the capacity to block out eight weeks of time.
When defense lawyers argued for a trial date in March 2011, Marrero compromised with the first Monday in February.
The court will reconvene on March 26 after the defense has had a chance to look at some of the evidence prosecutors are submitting. Lawyers for the defense said they might want to argue for a later trial date at that time, but Marrero hinted he would not be willing to move the date by more than a couple of days.