In court documents filed last week, lawyers for Steven Goldberg and Peter Grimm, who were found guilty of fraud and conspiracy by a jury in May and sentenced in October, argued their clients had limited financial resources and would struggle to pay the restitution requested by the government.
The lawyers also said the government did not prove that issuers were financially harmed as a result of their clients’ actions and that municipalities have already been made whole by previous restitution payments made by big banks to settle civil cases.
“The limited assets left to Mr. Grimm’s wife and children are needed to support them while Mr. Grimm is incarcerated,” said Grimm’s attorney in court papers. “It would be inequitable to take from his family the remaining money they have.”
Goldberg’s attorney said the restitution “ignores the reality that Mr. Goldberg was a mid-level manager who did not personally profit from the scheme and who does not posses great financial resources.”
Dominick Carollo, another former banker at GE Funding Capital Market Services, Inc. who was also found guilty in the trial and sentenced, does not appear to be opposing the restitution, according to court documents. Lawyers for the men did not return calls requesting comment.
“I think its fair to characterize the defense’ situation as an uphill battle,” said Anthony Sabino, a white-collar defense lawyer at Mineola, N.Y.-based Sabino & Sabino PC not involved in this case. “Given that this is a financial crime, there has to be a quantum of financial damage.”
While Goldberg and Grimm might “chip away” at the restitution, Sabino predicted they will still face seven-figure payments.
“They are never going to get it to zero. That would be them convincing the judge that they stole nothing,” he said.
Prosecutors said the former bankers conspired to rig bids for reinvestment contracts by submitting bids after receiving “last looks” at others’ bids.
Those actions, which took place between 1999 and 2006, defrauded issuers and the Internal Revenue Service, the government said.
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. They have all appealed.
The Justice Department requested in December that Goldberg pay $4.3 million in restitution to hundreds of issuers, and that $2.6 million in restitution be paid jointly by the three men.
A total of $12.9 million in restitution had been requested, but that amount was lowered to account for restitution paid in by GE, Bank of America, UBS AG, JPMorgan Chase & Co., and Wachovia, now Wells Fargo & Co., in civil settlements with the Securities and Exchange Commission and others.
The restitution included compensation for fees issuers paid to brokers, losses caused by artificially-low bids, legal expenses and kickbacks paid by the defendants to brokers, which the government said resulted in higher interest rates.
In separate documents, lawyers for Goldberg and Grimm said that determining restitution is so complex and time consuming that reviewing calculations for accuracy is nearly impossible.
“The burden on the court and the parties ... heavily outweighs the need to provide restitution to any victim in this case,” said Grimm’s lawyers.
They also challenged claims that issuers suffered losses, even if bids were artificially low.
“The GIC issuers still made more money as a result of the defendants’ participation in the bid process. The proof is that Mr. Goldberg’s bid (even if ‘lowered’) was still higher than any competitor,” said Goldberg’s attorney.
Restitution also should not include brokers’ fees because brokers helped issuers buy “fully-functioning GICs with AAA-rated counterparties that never defaulted.”
Grimm’s attorney added that issuers’ losses were estimated in earlier court documents to be $13 million, but that $29 million in restitution has already been paid by financial institutions. “The sum of restitution settlements for each count exceeds the sum of victim harm,” he told the court.
Lawyers also argued that their clients’ lack of job prospects after prison will make it difficult for them to pay. “[Grimm] is trained only to work in the financial industry, and he will never again be able to do so with a judgment of conviction against him,” said Grimm’s attorney.
Sabino said now’s the “one and only chance” for the defendants to knock the numbers down. Once restitution is set, it can’t be erased, not even with a bankruptcy filing, he said. “That’s one reason they are fighting,” said Sabino. “These debts will haunt them to their grave.”