Justice Department antitrust prosecutor Rebecca Meiklejohn and Internal Revenue Service agent Michael Okubo gave bond lawyers an indepth look at the investigations and prosecutions of convicted bid riggers, urging them to be more careful about looking for red flags that suggest laws are being violated in bond transactions.
The panel, chaired by Hawkins, Delafield & Wood LLP’s Howard Zucker, featured audio and visual evidence presented at the trials of broker-dealers and bankers convicted of defrauding issuers and the IRS by rigging bids for muni investment contracts.
The trials showed bids were awarded to certain firms who made kickbacks to brokers who gave them inside information about other bids. Some bidders were encouraged to place so-called courtesy bids for contacts they knew they would never win.
Okubo allowed the lawyers to listen to the audio tapes, which featured the bid riggers arranging specific rates and kickback amounts to see if they could hear the beginnings of a crime occurring.
“Does that sound like a conversation that should take place in a competitive bidding process?” he asked after one such audio clip played.
Meiklejohn said she had no experience in dealing with the municipal market before the investigation ramped up in 2005.
“It turned out to be quite a journey,” and it’s not over yet,” she said, adding that she was glad to be able to address the role of bond counsel in the crimes.
“I’m thrilled the organization asked us to be here,” she said.
Meiklejohn said federal investigations revealed that bid documentation and certificates were routinely sent to bond counsel. That helped establish evidence of fraud by showing that bond counsel relied on those documents, and that issuers in turn relied on bond counsel, she said.
Bond lawyers should examine such documentation for red flags like qualifications and alterations, such as the “subject to market” qualification some fraudulent bidders used when submitting a bid they intended to lose.
Zucker said hearing the evidence made his hair “stand on end,” and wondered aloud whether bond lawyers should be thinking about how to make certificates less prone to abuse than they are under existing tax regulations.
Walter St. Onge, of Boston-based Edwards Wildman Palmer LLP, who testified at the bid rigging trials on the role of bond counsel, said bond lawyers certainly have a role to play if they are aware of impropriety.
“If you’re aware of this kind of misconduct, you have to deal with it,” he said.
Meiklejohn said that no particular type of bond transaction was more prone to fraud than any other type, and that the evidence the federal government accumulated during its years-long investigation showed a wide variety of issuances being used for criminal activity.
“It was really a crime of opportunity,” she said.