WASHINGTON — The Justice Department today indicted three former financial services executives — Dominick Carollo, Steven Goldberg and Peter Grimm — on 12 criminal counts for participating in wire fraud schemes and conspiracies in connection with the bidding for investment contracts for municipal bond proceeds from as early as 1999 until 2006.
The indictment, which was filed in the U.S. District Court for the Southern District of New York in Manhattan, does not identify the firms that employed the three, other than to say the firms were providers of investment agreements known as “Provider B”.
Documents show the Provider B firms were affiliated with General Electric Co. and included FGIC Capital Market Services Inc., GE Funding Capital Market Services Inc., Trinity Funding LLC and Trinity Plus Funding LLC.
According to the indictment, all three men, when competing for investment agreements, obtained “last looks” at prices, price levels, or conditions in competing providers’ bids from CDR Financial Products Inc. and other brokers of investment agreements. The practice of obtaining a last look is prohibited by Treasury Department regulations, the indictment said.
In exchange for the information, the three men submitted intentionally losing bids for certain investment agreements, when requested, and on other occasions, agreed to pay, or arrange for kickbacks to be paid, to CDR and other “co-conspirator” brokers.
The three men and their co-conspirators misrepresented to municipal issuers and bond counsel that the bidding process was genuinely competitive and in compliance with Treasury regulations, the U.S. attorneys said. As a result, municipal issuers awarded contracts to providers of investment agreements that otherwise might not have been awarded.
Prosecutors said the actions of the three men and their co-conspirators to control and manipulate the bidding for investment contracts and the various certifications made to issuers and the Treasury undermined the ability of the Internal Revenue Service to determine whether the issuers had correctly accounted for the money that was owed to the Treasury.
“The elaborate schemes outlined in the indictment boil down to efforts by these defendants to subvert the competitive bidding process for investment agreements,” said Federal Bureau of Investigation director-in-charge George Venizelos. “In the process they defrauded public entities — and therefore the public — and put bondholders at risk.”
Goldberg is charged with eight counts of conspiracy and two counts of wire fraud. Grimm is charged with five counts of conspiracy and one count of wire fraud. Carollo is charged with four counts of conspiracy and one count of wire fraud.
The alleged fraud conspiracies each carry a maximum penalty per count of five years in prison and a $250,000 fine. The wire fraud charges each carry a maximum penalty per count of 20 years in prison and a $1 million fine.
The maximum fines for each of the offenses may be increased to twice the gain derived from the crime or twice the loss suffered by the victims of the crime, if either amount is greater than the statutory maximum fine, U.S. attorneys said.
