WASHINGTON — Just four days before his trial was to begin, CDR Financial Services founder David Rubin pleaded guilty on behalf of himself and his firm to three criminal counts for bid-rigging and fraud conspiracies in connection with investment contracts for muni bond proceeds and muni-related derivatives.
The counts were bid-rigging conspiracy, fraud conspiracy, and a substantive or specific count of wire fraud, the Justice Department said.
A sentencing hearing has been scheduled for April 27 at 3:00 p.m.
The three counts for Rubin carry maximum penalties of $1.5 million in criminal fines and 35 years in prison, according to the Justice Department.
For Beverly Hills, Calif.-based CDR, the counts carry maximum criminal fines of $101 million, which can be increased to twice the gain derived from the crime or twice the loss suffered by the victims, if either of those amounts are greater than the statutory maximum fine.
The pleas by Rubin and the firm come as the trial against them and two other former CDR officials was to begin next week in the U.S. District Court for the Southern District of New York in Manhattan before Judge Victor Marrero.
As of Friday, that trial was still scheduled to take place for the firm’s former chief financial officer, Zevi Wolmark, and its former vice president, Evan Andrew Zarefsky. Jury selection is to begin on Jan. 3 and oral arguments on Jan. 9. Three former CDR employees have pleaded guilty and are expected to testify as prosecution witnesses. They are Matthew Adam Rothman and Douglas Alan Goldberg, both former vice presidents, as well as Daniel Naeh, who acted as a bidding agent,
Rubin’s plea comes after he lost his bid to get a federal appeals court to overturn Marrero’s ruling against delaying the trial because his wife is dying of cancer.
“Mr. Rubin and his company engaged in fraudulent and anticompetitive conduct that harmed municipalities and other public entities,” said Sharis A. Pozen, acting assistant attorney general in charge of DOJ’s antitrust division. “Today’s guilty pleas are an important development in our continued efforts to hold accountable those who violate the antitrust laws and subvert the competitive process of our financial markets.
“Mr. Rubin and his firm were trusted with public money and confidence to assist municipalities with issuing bonds,” said Federal Bureau of Investigation assistant director-in-charge Janice K. Fedarcyk. “Contrary to his agreement and the law, Mr. Rubin shirked his responsibilities while defrauding taxpayers. Thankfully, this bid-rigging scheme, where Mr. Rubin decided the winners and losers, is over.”
Rubin, CDR, Wolmark, and Zarefsky were indicted on Oct. 29, 2009 for participating in bid-rigging and fraud conspiracies with several financial institutions and insurance companies. CDR was a bidding agent and the institutions and companies were providers of such products as guaranteed investment agreements, forwards, interest rate swaps used by state and local governments and conduit borrowers in muni-related transactions.
During his plea hearing, Rubin admitted that, from 1998 until 2006, he and other so-called co-conspirators supplied information to providers that would either ensure they would win bids for contracts or that they would intentionally lose bids so that other firms could win. The firms also signed certifications that falsely claimed the bidding process was competitive and done at arm’s length. Rubin also admitted that he and other firms solicited fees from the providers, which were actually payments to CDR for rigging or manipulating the bidding process.
Under federal tax laws, the failure to conduct an arm’s-length, competitive process can result in an artificially determined price for an investment or other muni-related contract and can jeopardize the tax-exempt status of the bonds.
The Internal Revenue Service “is the federal agency responsible for compliance with the tax laws applicable to the issuance of tax-exempt municipal bonds,” said special agent-in-charge Charles Pine with the IRS Criminal Investigation New York field office. “Today’s guilty pleas by CDR and David Rubin are the result of a coordinated effort by Department of Justice and IRS-Criminal Investigation. Depriving municipalities of investment earnings and diverting arbitrage via illegal agreements and kickbacks will not be tolerated. IRS-Criminal Investigations will continue to investigate fraud in the municipal bond market and recommend prosecution against those who have participated in the fraudulent scheme.”
Rubin is the 10th individual to plead guilty in the federal criminal probe of anticompetitive behavior in the muni market, which has been ongoing since 2005.
Dominick Carollo and Peter S. Grimm, formerly of GE Funding Capital Market Services, and Steven E. Goldberg, formerly of that firm and FSA, were indicted on July 27, 2010, and are slated to begin trial in April 2012. Three former UBS Financial Services Inc. employees — Peter Ghavami, Gary Heinz, and Michael Welty, were indicted on Dec. 9, 2010.
More than $740 million has been obtained from bid-rigging settlements that Banc of America Securities LLC, now Bank of America Merrill Lynch, UBS, JPMorgan Chase & Co., Wachovia Bank NA, now Wells Fargo Bank NA, and GE Funding Capital Markets entered into with the Justice Department, IRS, Securities and Exchange Commission, bank regulators, and more than two dozen attorneys generals in global criminal and civil cases.
