WASHINGTON — The Justice Department on Thursday
The three were charged with one count of conspiracy, two counts of conspiracy to commit wire fraud, and two counts of wire fraud. Heinz was also charged with witness-tampering. After he learned of the government’s antitrust probe of the muni market in November 2006, he allegedly told another individual, among other things, to meet with a second person to coordinate stories about a rigged deal, the department said.
The indictment comes after Ghavami, a Belgian national living in Moscow, was arrested last week at John F. Kennedy International Airport in New York while entering the country. Ghavami was originally arraigned on one count of wire fraud.
In the 42-page indictment filed Thursday, the Justice Department does not identify UBS, referring to the employer of the three only as a subsidiary of Financial Institution A, whose principle place of business is in Zurich, Switzerland. Financial Industry Regulatory Authority documents show they worked at UBS.
Ghavami was managing director and co-head of the municipal bond reinvestment and derivatives desk and his compensation was based on the revenue generated by the desk, among other things. Until March 2004, he supervised Heinz and Welty, who were each vice presidents and marketers. Their compensation also was based on the business and revenue they obtained.
According to the indictment, Ghavami, Heinz and Welty conspired with employees of other financial institutions — including Beverly Hills-based Rubin/Chambers, Dunhill Services Inc., now CDR Financial Products — to manipulate the bidding process for investment agreements and other contracts. They would discuss prices and bids, determining which firm would win the bids and which firms would not.
They and their co-conspiractors falsely certified that the bidding process was competitive and in compliance with U.S. Treasury Department regulations, according to the Justice Department. As a result, muni issuers purchased investment contracts from providers that otherwise would not have been awarded the contracts. In some cases, the Internal Revenue Service and the Treasury were deprived of money to which they were entitled, the indictment alleges.
Ghavami, Heinz and Welty were charged with conspiracy and fraud schemes in their capacity as brokers and advisers to municipal issuers, the Justice Department said. Acting as brokers, they accepted kickbacks on behalf of their employer in exchange for manipulating the bidding process and steering investment and other contracts to certain firms.
They allegedly conspired with employees of various financial institutions to manipulate the bidding process for these agreements and contracts, by discussing with co-conspirators the price or price level their employers intended to bid and determining which financial institution would win a particular investment agreement or municipal finance contract.
“The individuals charged today allegedly participated in complex fraud schemes and conspiracies that subverted competition in the market for municipal finance contracts and deprived municipal bond issuers of their investments to the detriment of the public,” said Christine Varney, assistant attorney general in charge of the Justice Department’s antitrust investigation. “This type of anticompetitive activity in our financial markets will not be tolerated and the antitrust division will continue to prosecute those who engage in this illegal conduct.”
“Some criminals may believe that the more complex the financing arrangements are, the easier it will be to avoid detection and financial investigation by the authorities,” said Charles Pine, an IRS criminal investigation agent. “As the agency responsible for ensuring compliance in the municipal bond industry, we will continue to investigate fraudulent schemes and recommend prosecution of those who seek to illegally benefit at the expense of taxpayers.”
Ghavami and Welty face a maximum of 45 years in prison and $2.25 million in fines, while Heinz face a total of 65 years and $2.5 million in fines. In addition, the maximum fines 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,” the Justice Department said.
Marc Mukasey, a partner at Bracewell & Giuliani, which represents Heinz, could not be reached for comment.
In a statement, Gregory Poe, who has his own firm and is representing Welty, said: “This is a very disappointing development. Mr. Welty will contest these charges vigorously.”
Andrew Ackerman contributed to this story.
