WASHINGTON — The Utah Housing Corp. has filed a lawsuit against two brokers — CDR Financial Products Inc. and Investment Management Advisory Group Inc. — and eight providers of guaranteed investment contracts, claiming they knowingly engaged in bid-rigging activities to artificially suppress interest rates on investment agreements it purchased for its housing bond proceeds.
The 33-page suit, filed Wednesday in the U.S. District Court for the District of Utah in Salt Lake City, charges the firms violated the Sherman Antitrust Act and seeks treble damages from them as well as any other relief considered to be appropriate. It asks for a trial by jury.
UHC issues tax-exempt housing bonds to provide financial assistance to low- and moderate-income first-time homebuyers,
Grant Whitaker, UHC’s president and chief executive officer, declined to comment on the suit beyond a prepared statement, except to say the Justice Department has contacted the corporation and it is cooperating with the department’s antitrust investigation of anticompetitive practices in connection with investment contracts in the muni market.
The suit describes 41 transactions in which CDR or IMAGE served as brokers for the auctions of GICs to be purchased by UHC for investments of its housing bond proceeds. CDR brokered all but two of the auctions and IMAGE was broker on those two. The suit lists all of the bidders in each transaction as well as the one that won each auction.
UHC’s suit charges CDR and IMAGE “knowingly participated in the illegal agreement, understanding, and conspiracy not to compete and to rig bids in order to win the favor of the defendant providers and share in the profits of the conspiracy, all in breach of their contractual and fiduciary duties and obligations to UHC.”
It claims the providers “combined and conspired to allocate customers and fix the interest rates paid to issuers under municipal investment agreements sold in the [United States] through agreements not to compete and acts of bid-rigging.”
UHC said that before 2009 when it learned that the Justice Department and other federal agencies were investigating anticompetitive bidding practices for investment agreements in the muni market, it “had no knowledge of or reason to investigate any bid-rigging activities in the purchase of GICs, despite the exercise of due diligence.”
“Unbeknownst to UHC, at the time that defendants were offering GICs to plaintiff and others, defendants had entered into a continuing agreement, understanding and conspiracy to unreasonably restrain trade and commerce in the United States, in violation of Section 1 of the Sherman Act,” the suit stated.
The providers named in the suit are: GE subsidiaries FGIC Capital Market Services Inc. and Trinity Plus Funding LLC, Natixis Funding Corp., Bayerische Landesbank, AIG Financial Products Corp., Transamerica Life Insurance Co.; Transamerica Life Insurance and Annuity Co., and Westdeutsche Landesbank.
Lawyers with Jones Waldo Holbrook & McDonough PC, which is representing UHC, could not be reached for comment.
The Justice Department’s antitrust probe was first publicly reported in November in 2006. The first court action from it was a federal grand jury indictment against CDR, its founder David Rubin, its former financial officer Zevi Wolmark, and former vice president Evan Andrew Zarefsky on wire fraud and other charges in October 2009.
UHC’s statement said Justice documents show the conspiracy extended to transactions involving it.
That was evident last year when Rebecca Meiklejohn, Justice’s lead antitrust attorney on the case, sent a letter to the judge presiding over the case listing more than 250 transactions, including some involving UHC.
In her letter, she specifically referred to single-family mortgage bonds that UHC issued in 2001 and related investment contracts for which CDR handled the bidding on Aug. 7, 2001.
She told the judge that although Zarefsky was supposed to be brokering a competitive bid for the contracts, he told the provider, “I can actually save you a couple of bucks here,” and offered to lower the rates he initially quoted.