The federal prosecutors in a municipal bond bid-rigging trial that began in New York on Monday accused three executives of fraud that cost cities and towns, and the Internal Revenue Service, millions of dollars.

But lawyers representing the three said there was no intent to defraud and questioned the credibility of witnesses scheduled to speak on the government’s behalf.

Judge Harold Baer of the U.S. District Court for the Southern District of New York in Manhattan heard opening statements from the U.S. Department of Justice and from attorneys representing Dominick Carollo, Peter Grimm and Steven Goldberg, all three former executives of subsidiaries of General Electric Co.

The three executives were indicted in July 2010 on 12 counts — five for Goldberg, four for Grimm and three for Carollo — including wire fraud and conspiracy.

The government prosecutors charged the three men with fixing bids for municipal bond investment contracts between 1999 and 2006.

The federal government called its first witness in the afternoon session, former CDR employee Douglas Goldberg. His testimony that he helped Steven Goldberg, no relation, fix bids was continued to Tuesday.

“This criminal case is about three executives who lied and cheated,” said Wendy Waszmer of the U.S. Justice Department’s antitrust division.

“They concealed their lies. You have their very own words on tape,” she added. “They committed fraud in deal after deal after deal and they defrauded cities and towns of millions and million of dollars.”

According to Waszmer, all three defendants worked at GE subsidiaries, including GE Capital Corp. and FGIC Capital Market Services Inc., with Goldberg and Grimm answering to Carollo. Goldberg, she said, continued to engage in fraud after leaving GE to work for the Financial Security Assurance.

Waszmer said the three conspired with brokerage firms, including CDR Financial Products, Investment Management Advisory Group Inc., or Image, Tradition and UBS, to manipulate bids for municipal bond contracts through such means as “last looks” at other bids, intentionally losing bids, and swaps, all of which corrupted the competitive bidding process, according to Waszmer.

“It’s like playing poker knowing everyone else’s cards,” she said, adding that the scheme included kickbacks through inflated fees “disguised in the flow of other transactions.”

The prosecution intends to bolster its case through the release of what it says are incriminating tapes, and testimony from others who have pleaded guilty to similar charges, and will testify in return for a lighter sentence. Twelve of the defendants have already pleaded guilty.

John Sand Siffert of New York’s Lankler Siffert & Wohl LLP, Goldberg’s lead attorney, called these witnesses “con men and fraudsters not worthy of your belief.” He said the government is cherry-picking tapes to mislead the jury and that the tapes will exonerate his client.

“Thank goodness for the tapes,” he said repeatedly throughout the morning. “The tapes will show that the prosecution has twisted this case beyond recognition.”

Carollo’s lead defense attorney, Walter Timpone of McElroy, Deutsch & Mulvaney LLP of Morristown, N.J., sought to portray his client as a diligent and honest worker. “If an issuer needed a transaction to close on a certain day, that transaction closed,” Timpone said.

“What you’ll hear on the tapes is that the transactions are being conducted openly and transparently,” he said

Mark Racanelli of O’Melveny & Myers LLP of New York said cities could have backed out of deals they didn’t like, but accepted transactions executed by his client, Grimm. “Every one of them they accepted and they didn’t have to,” he said.

He also warned the jury about the motives of witnesses seeking leniency from prosecution.

“The desire to stay out of jail is a very powerful motivator,” Racanelli said.

Baer admonished all four Monday morning to wind down their presentations. “I’d like to move this case with some alacrity,” he said.

Three others awaiting trial on bid-rigging charges are scheduled for trial July 9.

They are former UBS Financial Services bankers Peter Ghavmi, Gary Heinz, and Michael Welty.

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