A federal judge determining the fate of three former UBS bankers convicted of fraudulently obtaining municipal bond contracts said Tuesday they might receive prison terms similar to three other bid-riggers.
Kimba Wood, presiding in the U.S. District Court for the Southern District of New York in Manhattan, said Peter Ghavami, Gary Heinz and Michael Welty might receive stiff fines when she imposes sentencing on Wednesday.
“I view the fines in this case to be an important part of punishment, given that this was a financial crime,” Wood said during oral arguments presented at the Daniel Patrick Moynihan courthouse.
The U.S. Justice Department’s antitrust division recommended sentences ranging from 11 to 19 years and hundreds of thousands of dollars in fines for Welty, Ghavami and Heinz, whom a jury convicted last Aug. 31 after a five-week trial of conspiring to rig bids for muni bond contracts, often offering “last looks” at competitors’ bids.
Prosecutors said the three bilked municipal issuers, the U.S. Treasury and the Internal Revenue Service out of millions of dollars.
Tuesday’s session focused on sentencing matters common to Ghavami, Heinz and Welty.
Wood, sitting in the same courtroom 23B over which Judge Harold Baer presided last year in the conviction of Dominick Carollo, Peter Grimm and Steven Goldberg, said the case is comparable. Goldberg received four years for conspiracy and wire fraud and a $90,000 fine, while Grimm and Carollo got three-year sentences and $50,000 fines each.
“We’ll take into account the sentencing that Judge Baer imposed,” said Wood, a federal judge since 1988, who sentenced “junk bond king” Michael Milken to 10 years in prison -- later reduced to two -- in 1990 after a plea deal.
Wood whittled down prosecutors’ estimates of losses the three created as a resulted of rigged interest rates from more than $9.5 million to $7.7 million. She broke it down to $3.3 million for Heinz, $3 million for Ghavami and $1.4 million for Welty.
“I do not accept all the elements of the government’s loss estimation,” said Wood. The judge, though, acknowledged losses in cases involving the Tobacco Settlement Financing Corp. of Rhode Island and the Commonwealth of Massachusetts, as well as $535,000 from kickbacks related to a Commonwealth of Puerto Rico bond deal.
James Mitchell of Ballard Spahr Stillman & Friedman LLP, Ghavami’s lead attorney, argued that Massachusetts did not lose money through that bond deal. “Massachusetts itself can’t be a victim,” he said.
But prosecutor Jennifer Dixton responded: “During the trial there was extensive testimony about how this was rigged.”
Wood also ruled that the government failed to meet the threshold for “sophisticated means” as a sentencing enhancement, even with high-end transactions and the use of third parties.
“The scheme was relatively simple. They manipulated the bidding process and lied about doing so,” she said.
Wood was to spend the rest of Tuesday’s afternoon session ruling on the number of fraud victims, the use of private trust and restitution. She also planned to inquire about the defendants’ finances, including damage to their homes from Hurricane Sandy, the fair-market valuation of their homes and even a $500,000 loan she said Ghavami provided Heinz.
“It’s quite clear Mr. Ghavami can pay,” she said.
