U.S. Attorneys in Bid-Rigging Case Seek $6.9M in Restitution from Three

WASHINGTON — U.S. attorneys asked a federal judge Monday to order former executives of a General Electric Co. affiliate to pay $6.9 million in restitution to municipal bond issuers for rigging bids on municipal bond reinvestment contracts.

In court papers, the prosecutors said Dominick Carollo, Steven Goldberg and Peter Grimm, who worked at GE Funding Capital Market Services Inc., caused municipal bond issuers to lose $12.9 million.

But they said the men should pay less because many issuers have received, or will receive, settlement payments from related civil suits against GE, Bank of America, UBS AG, JPMorgan Chase & Co., and Wachovia, now Wells Fargo & Co.

Carollo, Goldberg and Grimm were convicted by a jury in May on charges of fraud and conspiracy. Prosecutors said they manipulated bids on municipal bond reinvestment contracts between 1999 and 2006, defrauding issuers and the Internal Revenue Service of millions of dollars.

Steven Goldberg was fined $90,000 and sentenced to four years in prison. Carollo and Grimm were each fined $50,000 and sentenced to three years in prison. They have appealed those sentences.

The government requested that Goldberg pay $4.3 million of the restitution. The remaining $2.6 million would be paid jointly by the three men.

Court papers say the three have 20 days to file a response with the court. Their attorneys could not immediately be reached for comment.

The restitution request lists some 160 issuers that prosecutors say were defrauded by the defendants. It also names roughly 250 specific bond issues.

Among the issuers are housing authorities in Maine, Mississippi and Utah, education agencies in Pennsylvania and West Virginia and economic development authorities in Maryland and Massachusetts. Also listed are Atlanta, Chicago and Ft. Lauderdale and other cities.

Some issuers, like the Utah Housing Finance Agency, the Allegheny County Hospital Development Authority, the county of Cuyahoga, Ohio, and the Commonwealth of Puerto Rico had multiple bond issues affected by the scheme, the government said.

Nearly half of the restitution is composed of fees issuers paid to brokers to ensure auctions for their reinvestment contracts were competitive and compliant with regulations of the Department of the Treasury. The fees should be returned to issuers because the brokers did not provide the services contracted for, the government said.

Issuers would also be compensated for receiving artificially-low bids on their investment agreements. The government determined the amounts based on the difference between the "original bids" and the "reduced bids" that were discussed by defendants in audio recordings.

Swap fees, which the government said were paid by the defendants to GIC brokers in exchange for manipulating bids, would also be included. The government said those fees were ultimately paid by issues in the form of higher interest rates.

Court papers noted that cooperating witness Zevi Wolmark, a former executive at GIC broker CDR Financial Products Inc., said in testimony that a $475,000 swap kickback would "come out of the [municipality's] pocket."

The government also seeks restitution for legal and other fees.

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