The federal judge who imposed $5.6 million in fines and restitution on municipal bond bid-rigger David Rubin, but no prison time, said incarceration was unwarranted.
"It would be a terrible injustice, and in my view would not provide a great deterrence," Kimba Wood of the U.S. District Court for the Southern District of New York said in her lower Manhattan courtroom late Wednesday.
Wood cited Rubin's role as a cooperating witness in the U.S. Justice Department's far-reaching investigation of muni bond bid-rigging and the need to care for his cancer-stricken wife, who has had an estimated 200 rounds of chemotherapy.
During a half-hour recess in the sentencing hearing, which had been delayed several months, attorneys for Rubin, 52, and the U.S. Justice Department's antitrust division compromised over the financial penalties.
Wood accepted the compromise.
Rubin, the founder of CDR Financial Products Inc., must pay $2.15 million in restitution for fraudulently depressed interest rates and kickbacks disguised as swap fees. He also must pay an individual fine of $1.5 million and will personally back a $2 million fine to CDR, because the Beverly Hills, Calif., firm has no assets and only exists on paper.
Prosecutors had sought $11.5 million in restitution and up to 19 years in prison for Rubin.
"They should have not let the guy slide without some kind of prison time," said Charles Anderson, former field manager for the Internal Revenue Service's tax-exempt bond office, who, according to market sources, played a major role in discovering the bid-rigging schemes and getting the Justice Department to investigate.
"He was the worst of a business that was pretty corrupt," he said.
"They gave Martha Stewart prison time for crying out loud," Anderson said. "Five million dollars for a guy like that is nothing. He probably made $5 million on a single deal."
Two long-time market participants who did not want to be named said they were stunned.
"The guy who everyone called 'the evil genius' got away with no jail time," said one, adding, "The real question is what's happening to the other firms that were on the tapes" the Justice Dept. used to prosecute Rubin and others. U.S. attorneys were looking at three firms that had been raided by federal marshals in November 2006. Besides CDR, they included the Investment Management Advisory Group, Inc. in Pottstown, Pa. and Sound Capital Management in Eden Prairie, Minn. which no longer exists. The former head of Sound Capital, Johann Rosenberg, now called B. J. Rosenberg, heads Blue Rose Capital Advisors based in Minneapolis.
Rubin pleaded guilty in January 2012 to bid-rigging schemes going back about a decade. The charges included conspiracy to allocate and rig bids for investment agreements and other municipal finance contracts, defrauding issuers and the IRS, and wire fraud.
"A surprisingly lenient sentence, given there is no jail time. Clearly, Judge Wood gave great consideration that this was not a crime of violence, but of money," said Anthony Sabino, a Mineola, N.Y. white-collar attorney and St. John's University law professor. "Accordingly, the punishment was measured in dollars, not days in jail. Some might disagree, but I think it's fitting, because it not only deprives the defendant of his ill-gotten goods, but penalizes him for his misdeeds.
"Wall Street bad guys understand only one thing: money," said Sabino. "When you hurt them in the pocketbook, they get the message."
General Electric Co., Bank of America Corp., JPMorgan Chase & Co., Wells Fargo & Co. and UBS AG have paid more than $700 million in restitutions and fines related to the government's sweep.
Rubin's restitution breaks down to about $1.3 million for depressed muni bond interest rates and $830,000 for swap-fee kickbacks.
"It seems to me that the victims have been largely, though not totally, made whole primarily because of the government's amazing results in extracting payments from institutions," said Wood.
She added, however: "It's almost impossible to calculate restitution."
Rubin, who must pay the penalty within a year, also received 500 hours of community service.
"I have deep remorse and great regret for my actions. I am truly sorry," Rubin told the court in a cracking voice.
Several times during his speech he had to stop and compose himself.
"Take your time," said Wood in a tiny, packed Room 9A at the Daniel Patrick Moynihan Courthouse before about 50 people - including standees - many of whom were Rubin's family and friends. Court officials transferred the hearing from the more spacious 23B.
Antitrust attorneys Rebecca Meiklejohn and Daniel Tracer gave no summary statement. Bradley Simon and Kenneth Murphy of Simon & Partners LLP represented Rubin, as did Perry Israel.
"Mr. Rubin has paid a steep price. He will have lost far more than he made," said Israel.
Rubin became a cooperating witness and testified in the trial of former bankers Peter Ghavami, Michael Welty and Gary Heinz, who are appealing their August 2012 conviction on the grounds that the government withheld evidence.
Former General Electric bankers Dominick Carollo, Steven Goldberg, and Peter Grimm, convicted in May 2012, are out of jail after an appeals court ruled the statute of limitations on their charges had expired before the government charged them with criminal counts.
Sentencing for former CDR executives Daniel Naeh and Douglas Goldberg is set for April 10 and April 22, respectively, according to court documents.
Wood, a federal judge for 26 years, sentenced "junk bond king" Michael Milken to 10 years in 1990 - although Milken only served two - plus three years' probation.
Lynn Hume contributed to this story.
