Second CDR Employee Pleads Guilty

WASHINGTON — A second former employee of CDR Financial Products Inc., Matthew Adam Rothman, has pleaded guilty to participating in bid-rigging and fraud conspiracies with other firms that provided investment agreements to states and localities, the Justice Department announced late Thursday.

The guilty plea comes about two weeks after Daniel Naeh, a former employee living in Israel, pleaded guilty for his participation in the same scheme that led to the department’s more than four-year investigation into bid-rigging and anticompetitive behavior in the muni market.

Under his agreement with federal prosecutors, Rothman pleaded guilty to one count of conspiracy to restrain trade through bid-rigging, one count of fraud conspiracy, and one count of wire fraud.

Though Justice Department officials are expected to encourage more favorable sentencing in exchange for his cooperation, Rothman faces a maximum of 10 years in prison and a $1 million fine for bid-rigging, five years in prison and a $250,000 fine for fraud conspiracy, and 20 years in prison and a $250,000 fine for wire fraud.

Sources said Rothman had no title at CDR but had been at the firm for close to a decade, leaving in early 2007.

Joshua Goldberg of Patterson Belknap Webb & Tyler LLP in New York, which represents Rothman, declined to comment on the plea agreement.

According to the Justice Department, Rothman admitted that as part of a bid-rigging conspiracy, from at least early 2001 through November 2006, he and other co-conspirators designated in advance which providers would be the winning bidder for certain investment agreements and submitted or caused to be submitted to CDR intentionally losing bids.

Rothman and co-conspirators secretly controlled and manipulated the bidding process for investment agreements and other municipal finance contracts, as well as arranged for kickbacks to be sent to CDR as “hedge fees” that were supposed to compensate the firm for acting as a broker, according to Justice.

The fees were not disclosed to the issuer and CDR provided false certification to the Treasury Department that the bidding process complied with Treasury rules, thereby jeopardizing the tax-exempt status of the bonds. On at least 10 occasions from around November 2001 to August 2005, CDR received kickbacks ranging in size from $4,500 to $475,000.

Justice officials said in a court filing that brokers owe a fiduciary duty to issuers that hire them and are required to act for the benefit of the issuers when conducting competitive bidding processes.

In late October, CDR, owner and president David Rubin, former chief financial officer and managing director Stewart “Zevi” Wolmark, and vice president Evan Andrew Zarefsky were indicted and charged with participating in bid-rigging and fraud conspiracies. They have all pleaded not guilty and a trial is set to begin Feb. 7, 2011.

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