WASHINGTON — Former CDR Financial Products, Inc. employees Douglas Goldberg and Daniel Naeh were not given any prison time or probation when sentenced on Thursday after pleading guilty in 2010 to multiple criminal charges for participating in wide-reaching bid rigging schemes in the municipal market.
During a hearing, Judge Harold Baer, with the U.S. District Court for the Southern District of New York in Manhattan, cited their cooperation with the federal government, according to Reuters. He fined Naeh, 47, $100,000, but ordered no fine for Goldberg, 42, citing his low net income level.
However, Baer said that if CDR founder David Rubin does not pay restitution as ordered, Naeh and Goldberg may be ordered to share that obligation, according to Reuters. Rubin was sentenced in March to two years of probation and to pay up to $5.65 million of fines and restitution after pleading guilty to conspiracy and wire fraud charges in 2011. Goldberg and Naeh had pleaded guilty to similar conspiracy and wire fraud charges.
U.S. attorneys had asked Baer to be lenient with sentences for the two, saying they provided "substantial assistance" in the government's investigation of CDR and other firms' rigging of bids to ensure certain firms would win or lose contracts with state and local government muni bond issuers for guaranteed investment contracts and other muni products.
The attorneys made the requests for leniency in two recent letters sent to Baer that reveal how Goldberg, Mark Zaino, another former CDR employee, and Douglas Campbell, a former Bank of America employee, provided important early help to the federal government with its probe.
CDR was a broker of guaranteed investment contracts and other municipal products and the centerpiece of the Justice Department antitrust division's massive bid-rigging probe. While most observers assume CDR was the target of the probe, it appears the federal government was after the investment banking firms, banks and other investment contract providers.
Goldberg worked at CDR from 1994 until 2006. In a 10-page letter dated April 29, Steven Tugander, a trial attorney with the antitrust division, told Baer that Goldberg approached the federal government about potential cooperation in November 2006, immediately after it had executed a search of CDR's offices in Beverly Hills, Calif.
"Prior to the search, the government's investigation of the municipal bond industry had been covert" and Goldberg had not been aware of it, the letter said. "The government had been in the process of reviewing a large volume of audio recordings and documents that had been obtained in the investigation .... that implicated CDR and several employees, including Goldberg, in multiple wire fraud and bid rigging conspiracies with numerous individuals and documents."
At that time, former CDR and UBS employee Mark Zaino and former Bank of America employee Douglas Campbell, were already cooperating with the government covertly. But Zaino had not been with CDR that long. The government thought Goldberg would be able to provide direct evidence against CDR founder David Rubin, and other employees Zevi Stewart Wolmark and Daniel Naeh, as well as firms providing the GICs and other contracts.
Goldberg began officially cooperating with the bid rigging probe in February 2007. His cooperation included making covert consensual audio recordings of industry participants and analyzing recordings and documents as well as testifying in grand jury sessions and at trials, according to Tugander.
"Goldberg had a uniquely strong ability to recall specific incriminating events and transactions that occurred at CDR during the conspiratorial period, often doing so without the need to have his recollection refreshed by audio recordings or documents," Tugander said. "Goldberg also displayed a uniquely strong ability to explain and simplify many of the numerous complex transactions that were under investigation so that they could be understood by the average lay person."
These abilities "proved invaluable" to the government's probe and prosecutions, Tugander said.
Goldberg met with the government about 60 times, traveling from California to New York, Chicago and Charlotte, N.C., many times on his own expense, the letter said. He made covert recordings and he reviewed and corrected transcripts of audio recordings used at trial.
Goldberg was "involved in virtually all aspects of CDR's reinvestment business, he provided the government with direct, incriminating evidence against Rubin, Wolmark, Naeh, other lower level CDR employees, and a number of conspiring providers," the letter said. Goldberg "was the only cooperating witness who was scheduled to testify in all four the government's indicted cases."
According to the letter, those four cases were against: Rubin and former CDR employees Wolmark and Evan Andrew Zarefsky; former General Electric employee Dominick Carollo; Peter Ghavami, who had been co-head of UBS' muni reinvestment and external derivatives desk; and former Bank of America senior executive Phillip Dennis Murphy
In a nine-page letter dated April 18, Tugander said Naeh cooperated with the government for close to seven years. Naeh began working at CDR in 1991 mostly in its pension business. Starting in 1995, he became a marketer in the muni reinvestment business, with responsibility for conducting bids for contracts. In exchange for manipulating the bidding process to ensure favored providers of investment contracts would win, Naeh and other CDR employees also arranged for CDR to be paid kickbacks. In late 2002, Naeh moved to Israel but continued his work with CDR. He was fired from the firm in May 2004.
Naeh approached the federal government about potential cooperation in mid-2007, after three other CDR employees, Goldberg, Zaino and Matthew Rothman, had already begun cooperating, according to the letter.
Naeh had developed relationships with senior executives at Bank of America and the now defunct Bear Stearns & Co. The government was particularly interested in his ability to provide additional evidence against Rubin and a senior executive of Bear Stearns, Tugander said. It also wanted his corroboration of other cooperating witnesses in helping to analyze recordings and documents.
Naeh made at least 16 trips from Israel to New York, mostly at this own expense, helped make covert consensual audio recordings of industry officials, and provided other help, Tugander said.
"Naeh was in a unique position to provide incriminating, direct evidence against numerous industry participants in connect with conduct that occurred during the 1998-2004 conspiratorial period," Tugander said. "These participants included CDR's owner, David Rubin, its chief financial officer, Zevi Wolmark, and a number of senior executive who were employed by various financial institutions including Bank of America and Bear Stearns."
Both letters cited at least 10 providers of muni contracts that participated in the bid-rigging with CDR: Bank of America, JPMorgan (later JPMorgan Chase), UBS, First Union (later Wachovia Bank, NA), Bear Stearns, Lehman Brothers, Societe Generale, SunAmerica, GE, and Financial Security Assurance, Inc.
During the course of its investigation, the letters both said, the federal government found that between 1998 and 2006, about 210 separate investment agreements for approximately 103 issuers were subject to bid-rigging.
To date, 14 individuals and one corporation have pleaded guilty to antitrust, fraud and other charges, the letters each said. In addition, five large financial institutions entered into settlement agreements to pay about $743 million in penalties, restitution, disgorgement of ill-gotten gains. Six former employees of financial institutions were tried and convicted of multiple criminal charges and sixteen defendants have been sentenced to date, they said.
