WASHINGTON — Jurors in the upcoming bid-rigging trial against Peter Ghavami, Gary Heinz and Michael Welty may hear the term “baking in chambers” this summer, but the phrase won’t be in reference to the temperature inside the Daniel Patrick Moynihan United States Courthouse in New York City.
The phrase, and others like “profit sharing” and “the market,” allegedly were codes used by the former UBS Financial Services Inc. bankers to carry out a scheme to rig bids for guaranteed investment contracts and other contracts related to municipal bonds, according to court documents filed Monday by attorneys for the U.S. Department of Justice.
Prosecutors charged Ghavami, former managing director at UBS, and former vice presidents Heinz and Welty in 2010 with fraud and conspiracy in connection with bidding for municipal bond contracts.
Prosecutors said the men conspired with staffers at other financial firms between 2001 and 2006 to set bid prices and to determine which financial institution would win particular contracts.
The trial is slated to start July 23 in U.S. District Court for the Southern District of New York.
In documents filed Monday, prosecutors released snippets of taped conversations and asked the court to permit “lay opinion” testimony from conspirators who can explain the meaning of conversations.
“Without the witnesses’ explanation of these code words and ambiguous phrases, jurors will not understand their meaning or appreciate their importance when they hear the recorded conversations,” according to the filing.
Attorneys for Ghavami, Welty and Heinz declined to comment until the trial starts, but filed motions Monday asking the court to bar certain testimony from trial, including “lay opinion” testimony and testimony from representatives of issuers. The defense filed a document supporting the motions, but it is under seal and unavailable.
A Department of Justice attorney also did not return calls for comment.
Prosecutors’ court papers highlighted four recorded conversations in 2001 and 2002, including a January 2002 tape in which Heinz asks an unnamed conspirator, “Am I baking in Chambers or are you baking in Chambers?”
“I’m going to add a couple bips, alright?” Heinz added, “Let me give the level in to CDR and see if you’re okay.”
Prosecutors said Mark Zaino, a former staffer at CDR Financial Products Inc. and UBS, was on the call and can testify that “Baking in Chambers” means including a kickback for CDR in the rate quoted for an investment agreement, court papers say.
Zaino, who pleaded guilty in May 2010 to charges of bid-rigging and fraud, can explain to the jury that Heinz and the conspirator were discussing the amount of the kickback, and who should pay it.
No wonder prosecutors want Zaino and others to testify, said Anthony Sabino, a white-collar defense lawyer at Mineola, N.Y.-based Sabino & Sabino PC.
“That’s so arcane and so off base,” he said of the “baking in Chambers” phrase. “I would never connect that to a financial transaction.”
“You definitely need some of the participants to get up there and say this is what the heck it meant,” added Sabino, who teaches law courses at St. John’s University’s Peter J. Tobin College of Business.
In another pricing conversation, an unnamed conspirator uses the term “a little loose,” and Heinz mentions “profit-sharing.”
Prosecutors say Zaino can testify that the men were basing bids on the amount to be paid to CDR. He can tell the jury that “profit-sharing” means illicit gains, and “a little loose” means the speakers hadn’t committed to a payment amount to CDR — they were still deciding how to split the difference between their price and an otherwise competitive bid.
Prosecutors said other witnesses could include men who have pleaded guilty to bid-rigging-related charges in recent years, including former CDR staffers Doug Goldberg, Daniel Moshe Naeh, Evan Andrew Zarefsky and Matthew Rothman, former Bank of America employees Doug Campbell, and Brian Zwerner and James Hertz, who worked at JPMorgan Chase & Co.
In a recorded call from September 2001, Ghavami tells an unnamed JPMorgan staffer, through a co-worker, “This is cryptic, but — and be discrete: We’re at plain vanilla Libor minus ... 16-ish.”
The government said the JPMorgan employee can testify Ghavami was referring to the number of basis points below the London Interbank Offered Rate index that UBS planned to quote to Detroit for a negotiated investment transaction. Prosecutors said the witness can explain that Ghavami called to ensure the JPMorgan staffer was prepared to tell the city that the price was a fair-market rate.
In another 2002 call, Welty tells the same co-worker, “The market on this thing was like from a three-and-a-quarter to a three-fifty, if you want to show a level to say you participated,” court papers said.
The co-worker replies, “If you want to put us in, you can ... Just send me whatever I need to sign ... I’ll just pick a number between.”
The government said the JPMorgan employee may testify that Welty had just disclosed the highest and lowest bids — “the market” — and that he was seeking a losing bid. The phrase “I’ll just pick a number between” meant that the co-worker agreed to bid within the range Welty specified.
Sabino warned that there are risks to calling conspirators to testify.
“When you call to the stand ... someone who already pleaded guilty, you take the chance that the defense will excoriate that person and annihilate their credibility,” he said. “You chop the guy into little pieces.”
Testimony from conspirators and audio transcripts featured prominently in the recent trial on similar charges of Dominick Carollo, Steven Goldberg and Peter Grimm, former executives of General Electric Co. affiliates who were found guilty of wire fraud and conspiracy on May 11.Attorneys for the defense had questioned the accuracy of witnesses’ memories, the consistency of testimony and even their drinking. The attorneys also argued that issuers were pleased with deals.
