WASHINGTON — The first criminal trial involving muni market executives accused of bid-rigging is scheduled to begin next week in a federal court in New York City, unless they enter into plea agreements.
The trial, which will pit the U.S. Justice Department's antitrust division against Dominick Carollo, Peter Grimm and Steven Goldberg, former executives of subsidiaries of General Electric Co., is slated to start April 16 in the U.S. District Court for the Southern District of New York in Manhattan.
The three were indicted in July 2010 on 12 counts, including wire fraud and conspiracy, in connection with the rigging of bids for municipal bond investment contracts between 1999 and 2006.
Federal prosecutors have indicted 15 others on similar charges, but 12 have already plead guilty, likely because of strong evidence against them, said Mitchell Herr, attorney with Miami-based Holland & Knight LLP and a former Securities and Exchange Commission lawyer.
The other six are awaiting trial.
Herr, who speaks about enforcement issues at industry meetings, called the government's bid-rigging investigation a massive undertaking involving many agencies, including the Department of Justice, the Federal Bureau of Investigation, the SEC, the Internal Revenue Service, banking regulators and states attorneys general.
The government has collected some $743 million from bid-rigging cases so far.
The defendants worked for "a group of separate financial services companies" in New York that were owned by a firm based in Fairfield, Conn., that was not identified in court documents.
The company is GE and documents show its subsidiaries include FGIC Capital Market Services Inc., GE Funding Capital Market Services Inc., Trinity Funding LLC and Trinity Plus Funding LLC, sources said.
Carollo supervised sales of investment and other municipal market agreements, and Goldberg and Grimm were liability managers authorized to submit investment agreement bids, according to the indictment.
The three conspired with firms, including CDR Financial Products, to manipulate bidding so that their firms, or others, won municipal bond investment agreements, the indictment said. Muni bond issuers typically select providers of investment agreements through competitive bidding designed to ensure bonds remain tax-exempt. Issuers often hire independent brokers to oversee the competitive bidding process.
The defendants obtained information from CDR such as prices, rates and conditions of bids from other investment-agreement providers, the indictment said. They obtained so-called last looks at other bids, and intentionally submitted losing bids so other firms would win. In addition, the three agreed to pay kickbacks, or arranged to have kickbacks paid in the form of inflated fees.
As a result, issuers awarded contracts that they otherwise might not have.
Conspiracy carries a maximum penalty of five years in prison and a $250,000 fine, per count. Each wire fraud charge carries a maximum penalty of 20 years in prison and a $1 million fine.
Three others awaiting trail on bid-rigging charges are former UBS Financial Services' bankers Peter Ghavami, Gary Heinz and Michael Welty. Their trial is scheduled for July 9.
The first long-awaited trial from the bid-rigging probe was to take place in January and involved CDR, its founder David Rubin and executives Stewart Wolmark and Evan Andrew Zarefsky, but they all pleaded guilty days before that trial was to begin.
Mark Zaino, who worked at UBS AG, and three former CDR staffers — Douglas Alan Goldberg, Mathew Adam Rothman and Daniel Naeh — also pleaded guilty to bid-rigging charges.