U.S. DOJ to Get Documents Linked to ARS Deal, CDR

The Allegheny County, Pa., Airport Authority plans by Tuesday to provide the U.S. Department of Justice with documents related to a $114.5 million auction-rate securities transaction done in 2002, including all agreements that pertain to CDR Financial Products Inc., its lawyer said yesterday.

In what appears to be tied to an ongoing nationwide investigation of anticompetitive practices in the muni market, the Justice Department's antitrust division subpoenaed the authority on May 6, requesting all documentation on the transaction, ranging from the search for professional services to the investment of bond proceeds.

The subpoena requests documents involving Chambers, Dunhill, Rubin & Co, now called CDR Financial Products, which may have served as a bidding agent for the investment proceeds.

"This demand includes but is not limited to the following types of documents and information ... all contracts or memoranda of understanding entered into with Chambers, Dunhill, Rubin & Co. with respect to" the Series 2002A and Series 2002B bonds, the subpoena stated.

The existance of the subpoena was originally reported by Bloomberg on June 2.

Jeff Letwin, a partner at Schnader Harrison Segal & Lewis LLP and the authority's general counsel, could not say for certain which services CDR performed on the $114.5 million of auction-rate debt, but believes CDR may have served as a bidding agent for the investment proceeds in the transaction. The official statement does not list CDR as a transaction participant.

"I'm trying to get through the documents to figure [CDR's role] out, but I think they were the bidding agent on the investment of the bond proceeds," Letwin said.

CDR spokesman Allan Ripp also could not pinpoint what services the company provided for the 2002 bonds, saying the CDR professionals who were involved in that deal have left the firm.

"I can't confirm or verify whether CDR's been asked to give any documentation, because the firm just doesn't comment on specific investigations other than to say that CDR cooperates with any regulator or agency that asks for documentation," Ripp said. "And we'll continue to do so, but there's nothing specific about that particular deal that's memorable or that the firm feels that it needs to go back into its archives and talk about publicly."

James Gill, the ACAA's chief financial officer, could not be reached for comment at press time.

The Airport Authority entered into two floating-to-fixed interest rate swaps in conjunction with the ARS. It remarketed the ARS into fixed-rate bonds in November 2006 and terminated the two swap agreements one year later. The authority made a $6.8 million payment for the termination of those two swap agreements as well as two others, according to the authority's 2006 audited report.

The Justice Department investigation surfaced in November 2006 when the Federal Bureau of Investigation raided CDR's Beverly Hills, Calif., office, as well as the offices of several other investment advisers. Four municipalities, led by Hinds County, Miss., filed a class action suit against CDR and more than 30 companies, claiming the firms violated antitrust laws through anticompetitive price fixing. A federal judge in New York City last month dismissed most of the allegations, although lawyers for the municipalities said they would consider refiling the case.

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