A trio of convicted bid riggers deserve prison terms of more than 16 years as well as hundreds of thousands of dollars in fines when they face a judge in July, Justice Department antitrust lawyers said.
The recommendations for harsh penalties, made in a sentencing memorandum filed with the U.S. district Court for the Southern District of New York in Manhattan on May 8, apply to ex-UBS AG managing director Peter Ghavami and his former colleagues Michael Welty and Gary Heinz. All three were convicted last year of multiple counts of securities fraud for conspiring to manipulate bids for guaranteed investment contracts and other investment and financial products. Their sentencing was postponed to July 23-24 from this week, according to attorneys involved.
The DOJ attorneys’ recommendations include at least 210 months, or 17.5 years for Ghavami, along with a fine of between $20,000 and $200,000 and 235 months, or 19.5 years for Heinz, along with a $25,000 to $250,000 fine, the DOJ said. Welty should be sentenced to at least 135 months, or more than 11 years, and a fine ranging from $17,500 to $150,000, they said.
While the prison term recommendations were based on the charges each was convicted of, the financial damages were calculated based on broker fees, kickbacks in the form of swap fees or additional revenue, losses from lowered bids and attorney fees and other expenses incurred by the issuers, according to the memorandum. Based on the government’s calculations, restitution should total $674,298.75 distributed among the issuer victims.
The DOJ attorneys also argue that the strict sentences are warranted for various legal enhancements of the crime, such as obstruction of justice and abuse of trust.
“All three defendants, while acting as brokers, were entrusted with broad discretion to conduct a competitive bidding process on behalf of the municipalities that hired them, and defendants used their position and discretion to facilitate their fraudulent schemes,” they said. “Therefore, the abuse of trust enhancement for each defendant is warranted.”
The three convicted ex-UBS employees differ from other GIC brokers who cooperated with the government investigation and pleaded guilty. Three former employees of CDR Financial Products Inc., among those who cooperated, were given prison terms ranging from six to 18 months in April.
The DOJ memorandum specifically states that Ghavami and his associates deserve stiffer penalties than those handed out to former General Electric Co. bankers Steven Goldberg, Peter Grimm, and Dominick Carollo after their convictions last year. Goldberg received a four-year prison term, while Carollo and Grimm each received three years.
The Ghavami defendants argue that the law does not allow “unwarranted sentencing disparities among defendants with similar records who have been found guilty of similar conduct,” but the DOJ memorandum counters that the conduct of Ghavami, Welty, and Heinz was “far more egregious.”
“UBS functioned as a provider, as a broker or bidding agent, and also as an underwriter of municipal bonds,” the DOJ memorandum states. “In contrast, GE and the Carollo defendants functioned only as providers. Defendants here abused all three of these relationships, as well as their role as a swap counterparty.”
The resulting crimes victimized a huge range of agencies and market participants, the government memorandum argues.
“Defendants’ fraud victimized the U.S. Treasury, the IRS [Internal Revenue Service], as well as numerous municipalities located throughout the United States,” the DOJ attorneys said.
Even so, sentences as steep as those requested by the government attorneys are unlikely, said Anthony Sabino, a white-collar defense lawyer at Mineola, N.Y.-based Sabino & Sabino PC. Sabino, who is not involved in the case, said the government routinely asks for the maximum or near- maximum penalty for each criminal count.
“You’re multiplying X-months per count,” Sabino said, explaining how the recommendations are reached. He added that there is some give built in to that request, so that if the judge imposes lighter sentences the prosecutors might still get sentences that satisfy them. He said that federal sentencing guidelines are not widely understood by anyone, making the call more difficult.
“I can’t see 16 years,” he said, guessing that something closer to 10 might be more realistic. Still, he added, the judge should be tough.
“We need to take this kind of white collar crime seriously,” Sabino said. “It’s not a victimless crime.”
The fines, however, are likely to run toward the higher end of the government requests, Sabino said, because the thinking is that financial professionals who get greedy should pay for that greed.
“When it comes to the money, you’re going to cough it up,” Sabino said. “It makes all the sense in the world.”