WASHINGTON — The Justice Department’s antitrust investigation has found dozens of firms and individuals conspired for at least six to eight years to secretly control the bidding for municipal bond investment and other contracts in more than 250 transactions, according to documents filed with a federal court in Manhattan.
The department has identified 25 entities and 30 individuals as co-conspirators in the scheme, Rebecca Meiklejohn, the department’s lead antitrust attorney in the case, told Judge Victor Marrero, of the U.S. District Court for the Southern District of New York, in a recent five-page letter that included several exhibits.
Meiklejohn did not name the individuals and firms, but included along with the Feb. 17 letter a list of transactions dating from July 20, 1998, through June 24, 2004, that she indicated were allegedly affected by the bid-rigging.
Bloomberg and other news organizations reported Friday that a document filed with the court Wednesday, but later sealed at the request of the firms, listed JPMorgan Chase & Co., Lehman Brothers Holdings Inc., and UBS AG among more than a dozen firms involved in the conspiracy.
The documents were filed in the Justice Department’s case against Beverly Hills-based investment broker CDR Financial Products Inc. and three of its current and former officials.
A federal grand jury indicted the firm, its founder David Rubin, its former financial officer Zevi Wolmark, and vice president Evan Andrew Zarefsky last October on criminal antitrust, wire fraud and other charges stemming from the alleged conspiracy to rig bids for municipal investment and derivatives contracts for undisclosed kickbacks disguised as fees. They pleaded not guilty in November. A trial has been scheduled for next year.
Documents filed earlier this year as part of plea agreements that the Justice Department reached with other former CDR officials cite transactions affected by bid-rigging schemes through November 2006, when the federal officials raided CDR and at least two other investment brokers.
In her Feb. 17 letter to Marrero, Meiklejohn said that, during its investigation, the federal government received recorded conversations from eight financial institutions, grouped by employee and identified by date and time of call. Some of the convervsations are for a period of only a few months, while others span several years.
In addition, the government has roughly 100 interview reports from seven current or former CDR employees as well as approximately 2,000 tape-recorded conversations from third parties, in which the government has identified a CDR employee as one of the speakers, she said. It also has data seized or otherwise obtained from CDR.
The testimony at the trial “will establish, in essence,” that CDR and its three current and former officials “secretly manipulated and controlled the bidding for contracts involving the proceeds of municipal bonds and other related contracts, to favor particular providers and that this conduct cheated the municipal issuers that were CDR’s clients and the Internal Revenue Service,” Meiklejohn told Marrero.
The trial has been scheduled for Feb. 7, 2011, but at a status conference held in the district court Friday, lawyers for the defendants pushed for a later trial date, complaining they will have difficulty examining the massive amount of data they were given by the Justice Department.
They said that “buckets” of information on the 250 deals contain 125 million pages and 670,000 audio recordings. They also pointed out the department itself has been reviewing the information for seven years and still is not finished.
Meiklejohn argued they do not need to read every page. In most cases, a word-search would be enough to find what they were looking for, she said.
Marrero said the defense’s concerns were “wrapped in a fair amount of hyperbole.” Still, he expressed sympathy, and suggested he might be willing to push back the February trial date by no more than a month or two. The next status conference is scheduled for May 14.
Meiklejohn described the contents of one of the “buckets” of information in her Feb. 17 letter to Marrero. It contained evidence related to some single-family mortgage revenue bonds, Series D, that were issued by the Utah Housing Corp. in 2001. The issuer had two investment agreements for which CDR handled the bidding on Aug. 7, 2001, Meiklejohn said.
The bucket, she said, contains evidence showing Zarefsky speaking to an investment provider, about the time the bids were due. Though Zarefsky was supposed to be brokering a competitive bid for the investment contract, he tells the provider, “I can actually probably save you a couple of bucks here.” He tells the provider he can lower the rates he initially quoted.
Bond documents for the transaction show that Lehman Brothers was the senior underwriter for the transaction and that Lehman Brothers Financial Products, Inc. was the “interest rate contract” provider. The documents show that Trinity Plus Funding Company, LLC was the investment agreement provider.