Tuesday, May 15, 2012

Former Executives Convicted for Participating in Municipal Bond Conspiracy

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

Three former executives of General Electric Co. (GE) affiliates were convicted by a federal jury in New York City on May 11 for their participation in conspiracies related to bidding for contracts for the investment of municipal bond proceeds and other municipal finance contracts. The trial against the three began on April 16.

An initial 12-count indictment was filed in July 2010, charging the former executives with participating in wire fraud schemes and separate fraud conspiracies at various time periods from as early as 1999 until 2006. A seven-count superseding indictment followed in May 2011.

The three former financial services executives participated in separate fraud conspiracies with various financial institutions and insurance companies and their representatives, according to the Justice Department. These institutions and companies, or “providers,” offered a type of contract, known as an investment agreement, to state, county and local governments and agencies throughout the United States.

The public entities were seeking to invest money from a variety of sources, primarily the proceeds of municipal bonds that they had issued to raise money for, among other things, public projects. One of the three defendants also participated in the conspiracies while employed at Financial Security Assurance Capital Management Services LLC.

According to evidence presented at trial, the conspirators corrupted the bidding process for dozens of investment agreements to increase the number and profitability of investment agreements awarded to the provider companies where they were employed.

The three defendants deprived the municipalities of competitive interest rates for the investment of tax-exempt bond proceeds that were to be used by municipalities for various public works projects, such as for building or repairing schools, hospitals and roads. Evidence at trial established that they cost municipalities around the country millions of dollars.

According to the Department of Justice, a total of eighteen individuals have been charged as a result of the ongoing municipal bonds investigation. Including these convictions, a total of 15 individuals have been convicted and three await trial. Additionally, one company has pleaded guilty.

“The defendants corrupted the competitive bidding process and defrauded municipalities across the country for years,” said Deputy Assistant Attorney General Scott D. Hammond of the Department of Justice Antitrust Division, in response to the verdict. “Through corruption and fraud, they cheated cities and towns out of money for important public works projects. Today’s convictions reflect our determination to preserve fairness and competition in the financial services market.”

The case is United States v. Dominick P. Carollo, No. 10 CR 654 (SD N.Y.). A news release appears here on the Antitrust Division website.

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