New Charges Brought in Antitrust Division's Municipal Bond Investigation

This posting was written by Jeffrey May, Editor of CCH Trade Regulation Reporter.

A federal grand jury in New York City indicted three former executives of a financial services company for their participation in fraud schemes and conspiracies related to bidding for contracts for the investment of municipal bond proceeds and other municipal finance contracts, the Department of Justice announced on December 9.

One executive also was indicted for witness tampering in connection with the Justice Department’s ongoing investigation into anticompetitive and fraudulent conduct in the municipal bond industry.

Fraud Schemes and Conspiracies

“The individuals charged today allegedly participated in complex fraud schemes and conspiracies that subverted competition in the market for municipal finance contracts and deprived municipal bond issuers of the benefits of their investments to the detriment of the public,” said Christine Varney, Assistant Attorney Generl in charge of the Department of Justice Antitrust Division.

“This type of anticompetitive activity in our financial markets will not be tolerated and the Antitrust Division will continue to prosecute those who engage in this illegal conduct,” Varney remarked. “This includes individuals who purposely seek to obstruct the government’s investigation.”

Investment Agreements

The charged conspiracies and schemes all related to a type of contract—known as an investment agreement—and other municipal finance contracts provided to public entities, such as state, county, and local governments and agencies throughout the United States.

Major financial institutions—including banks, investment banks, insurance companies, and financial services companies—are among the providers of investment agreements and other related municipal finance contracts.

Public entitles typically hire a broker to conduct a competitive bidding process among various providers prior to awarding these agreements and contracts, according to the Justice Department.

One of the defendants, a Belgian national currently residing in Moscow, was arrested at John F. Kennedy International Airport in New York City on December 1 on a criminal complaint that was filed under seal on September 16.

The criminal complaint charged that the individual participated in a scheme to defraud a municipal bond issuer with respect to the investment of municipal bond proceeds.

Superseding Indictment

The indictment alleges that these three individuals conspired with Beverly Hills-based Rubin/Chambers, Dunhill Insurance Services Inc. (CDR), and others in order to obtain from CDR information about the prices and other information related to competiting bids. They then used the information to determine their employer's bid, according to the indictment.

Charges against CDR and some of its current and former executives were the first to be filed in the Justice Department's ongoing investigation. A superseding indictment was filed on December 7 in the case against CDR to include violations of the honest services statute in three counts alleging wire fraud.

A news release on the charges appears here on the Department of Justice Antitrust Division’s website. Further details will appear in CCH Trade Regulation Reporter.