WASHINGTON — The federal grand jury's indictment against Beverly Hills-based CDR Financial Products Inc., its founder David Rubin, and current and former officials at the firm for allegedly rigging bids for investment and derivatives contracts in return for kickbacks could be just the tip of the iceberg, market participants said yesterday.

"This is the beginning of a very painful time for the market," said one market participant whose firm is involved in the investigation and did not want to be named.

Meanwhile, Rubin, Stewart "Zevi" Wolmark, former chief financial officer and a managing director of CDR, and Evan Andrew Zarefsky, a vice president of the firm, are scheduled to be arraigned in a federal court in Manhattan next Friday, their lawyers said Friday.

The nine-count indictmentagainst CDR and the officials alleges that the firm, a broker of guaranteed investment agreements and derivatives contracts, as early as 1998 and at least until November 2006, rigged the bidding process for the contracts and agreements so that certain firms would submit losing bids and a specified firm would submit a winning bid in return for undisclosed kickbacks disguised as "hedge fees."

The providers of investment agreements are supposed to be chosen based on competitive bidding procedures designed to comply with tax requirements, and the indictment alleges CDR falsified documents claiming they were competitive.

As a result of the rigged bids, "the intended winning provider increased its profits from the investment agreement(s) by paying interest to the municipality for the duration of the investment agreement(s) at a rate that was artificially low," the indictment said.

A spokesman for CDR and attorneys representing Zarefsky last week denied any wrongdoing.

Other indictments are likely to follow these because the one against CDR references at least four other firms and marketing agents, generally describing them as co-conspirators but not naming them, sources said.

In addition, the Justice Department subpoenaed numerous firms and issued target letters against many individuals in its massive antitrust investigation into anticompetitive practices in the municipal market.

The investigation became public in November 2006 with federal raids on the offices of CDR and other GIC brokers. It is being conducted by the Justice Department antitrust division's New York field office, the Federal Bureau of Investigation and the Internal Revenue Service's criminal investigation division, according to Justice officials. Justice is also coordinating its probe with the Securities and Exchange Commission, the Office of the Comptroller of the Currency and the Federal Reserve Bank of New York, they said.

"I would anticipate a lot more indictments down the road," said Charles Anderson, former manager of tax-exempt bond field operations for the IRS, who retired from the agency in January 2007 and is now a tax-controversy consultant.

"This is just the opening shot," said Christopher Taylor, former Municipal Securities Rulemaking Board chairman who is now a financial consultant. "The Justice Department had a road map with Philadelphia and Jefferson County, Ala. And I'm sure Bank of America Corp., now Bank of America-Merrill Lynch, gave them a lot."

Taylor was referring to a pay-to-play corruption case in Philadelphia that resulted in indictments in 2004 and later criminal convictions of the city's former treasurer, Corey Kemp, as well as two former Commerce Bank executives and two ex-JPMorgan bankers. He also was referring to numerous swap deals done for Jefferson County.

Taylor said some of these transactions involved many of the same market participants and that he would not be surprised if the federal government had tapped the phones of CDR and other firms, just as it tapped the phones of city officials in the Philadelphia case.

Bank of America paid $14.7 million and entered into an amnesty agreement with the Justice Department in February 2007 under which it agreed to voluntarily provide information and "continuing cooperation" to the department in exchange for protection from criminal charges resulting from the antitrust probe.

The indictment against CDR refers to two financial institutions that were branches or agencies of foreign banks. Sources believe these institutions were UBS, which pulled out of the municipal securities market in June 2008, and Societe Generale, which the IRS alleged in the spring of 2007 was, along with CDR, fixing prices on financial products to divert arbitrage in so-called lease-to-own housing deals.

A spokesman at UBS said the bank would not comment on whether it was one of institutions referred to in the indictment. Societe Generale media relations director Jim Galvin declined to comment. The IRS price-fixing allegation against CDR and SocGen was revealed by the New Mexico Housing Authority's Region III , which issued $27.71 million of variable-rate lease purchase revenue pass-through bonds in 2003.

The CDR indictment also refers to Provider A, a group of related financial services companies located in Manhattan and owned or controlled by a company headquartered there, and Provider B, a group of separate financial services entities that were controlled by, or were part of, a company headquartered in Connecticut.

Sources said Provider B is GE Funding CMS, also known as Trinity Funding Co., a unit of General Electric Co. A managing director at GE Funding declined to comment and referred a reporter to GE, which he said was handling the matter. A GE spokesperson could not be reached for comment. But the company has disclosed in financial filings that its subsidiaries had received subpoenas and one had received a Wells Notice from the SEC, warning that staff was considering filing civil charges against it.

The indictment also refers to a transactions involving a port facility, a water development authority, and a statement housing agency.

As of February last year, at least 10 current or former brokers at major Wall Street and other firms had been targeted for possible indictment by the Justice Department in connection with the grand jury investigation, according to firms' regulatory filings.

All 10, or their current or former firms, disclosed in regulatory filings that they had received written notifications from the Justice Department stating either that they are "target[s]" of the grand jury investigation or that they have been contacted in connection with possible violations of antitrust and other laws.

The individuals who received target letters or other notices included former employees of UBS Securities LLC, JPMorgan, Bear, Stearns & Co., PackerKiss Securities Inc., in San Rafael, Calif., Piper Jaffray & Co., and Wachovia Bank NA .

"The bottom line is that David Rubin has done nothing wrong. We are going to vigorously defend him and the company," said Donald Etra, a lawyer in Los Angeles.

But the indictment alleges that CDR received undisclosed kickbacks, concealed as fees, that ranged in size from $4,500 to $475,000 on at least 10 occasions between November 2001 and August 2005.

If convicted, the accused could face a total of over 70 years in prison and fines upwards of $3 million. CDR also could be fined several hundred million dollars.

CDR has completed more than 4,000 transactions totaling $100 billion in more than 22 years in business, according to information on its Web site.

The site says the firm has served as a financial derivatives consultant on hundreds of transactions.

It also offers swap monitoring services and sayss that since 2000 it has served as a bidding agent/investment consultant on more than 1,000 transaction totaling $25 billion.

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