WASHINGTON — Phillip D. Murphy, a former manager of municipal derivatives products at Banc of America Securities LLC, now Bank of America Merrill Lynch, was indicted by a federal grand jury on three counts of conspiracy and wire fraud in connection with a fraudulent scheme to rig bids for municipal-bond related investment agreements.
His indictment on two counts of conspiracy and one count of fraud was announced on Friday by the U.S. Department of Justice, just one day after the DOJ disclosed that former JPMorgan Chase & Co. banker Alexander Wright had pleaded guilty to conspiring to commit wire fraud in connection with bid-rigging.
Murphy was charged with conspiring with Rubin/Chambers, Dunhill Insurance Services Inc., now CDR Financial Products Inc., a Beverly Hills, Calif.-based broker of municipal finance contracts, to increase the number of, and profits from, investment agreements and other financial contracts “won” by his firm from as early as 1998 until 2006, according to the indictment.
Murphy also misrepresented to municipal issuers that the bidding process was competitive and in compliance with Treasury Department rules when it was actually rigged, placing the tax-exempt status of the bonds in jeopardy, the department said.
In addition, Murphy conspired with others to falsify bank records for marketing profits so kickbacks could be paid to CDR and other firms for the bid-rigging, it said.
“The individual charged yesterday allegedly participated in a complex fraud scheme and conspiracies to manipulate what was supposed to be a competitive process,” according to Scott Hammond, the deputy attorney general of the antitrust division’s criminal enforcement program at DOJ.
Murphy supervised the day-to-day activities and personnel of the muni derivatives group at Banc of America Securities, according to the indictment, and also served as a marketer of investment agreements and other muni finance products.
Murphy’s compensation was based on the amount of revenues generated by his group at the firm.
The firm agreed to pay more than $137 million to settle charges related to bid-rigging of muni contracts from securities, banking and tax regulators, as well as 20 state attorneys general in late 2010.
Bank of America, which neither admitted not denied the charges, was granted amnesty from criminal charges in 2007 in return for cooperating with the massive federal antitrust probe.
Murphy worked in the firm’s Charlotte, N.C., office from June 1998 through September 2001 and after that, through August 2002 at its New York offices.
He supervised Douglas Lee Campbell, according to the indictment, and Dean Pinard, who was only identified as “Marketer A.”
Campbell pleaded guilty to three criminal counts of conspiracy and wire fraud in September 2010.
Pinard agreed in December 2011 to pay more than $40,000 to settle civil charges with the Securities and Exchange Commission for his role in improper bidding practices.
In addition, Brian Scott Zwerner, a former managing director at the muni derivatives trading desk of the firm, pleaded guilty in March 2011 to one criminal count of engaging in a conspiracy for falsify bank records.
According to the indictment, the bidding was rigged for bond-related investment agreements for the Alameda Corridor Transportation Authority, the J. David Gladstone Institutes, and Santa Clara University, all of which are located in California.
Maximum penalties for Murphy’s charges are: five years in prison and a $250,000 fine for fraud conspiracy, 30 years in prison and a $1 million fine for wire fraud, and five years in prison and a $250,000 fine for false bank records conspiracy.
Murphy’s attorney, Susan R. Necheles of Hafetz, Necheles & Rocco, could not be reached for comment.
To date, a total of 13 individuals and CDR have pleaded guilty to criminal charges stemming from the ongoing bid-rigging investigation.