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Robert Trigaux

In alleged nationwide municipal bond bid rigging conspiracy, Florida taxpayer may be a victim

Departmentofjusticelogo Wake up and good morning. It's getting harder to keep up with all the allegations of financial chicanery, but now comes new reports that more than a dozen banks have been accused of taking part in a nationwide conspiracy to rig bids in the $2.8 billion municipal bond market. Bloomberg News reports the bid rigging may involve Bank of America, Citigroup, JPMorgan Chase, Lehman Brothers and Wachovia. And Florida taxpayers are likely among the victims.

The banks are accused of colluding with financial advisers to municipalities on auctions for guaranteed investment contracts, known as GICs. The banks may have paid the advisers kickbacks, according to Bloomberg, which cited Justice Department documents, civil lawsuits by municipalities and interviews with bankers and officials. They were involved more than 200 deals by about 160 state agencies, local governments and nonprofits, according to Bloomberg. Here is the extensive Bloomberg story.

The workings of the conspiracy stretched nationwide and included more than 200 deals involving about 160 state agencies, local governments and non- profits. In all, the GIC contracts hold tens of billions of taxpayer money.

Eighteen employees at 16 other companies, including units of General Electric Co., UBS AG and FSA, then a unit of Brussels lender Dexia SA, are also cited as co-conspirators by the Justice Department, according to the list under seal. None have been charged in the case.

At the center of some of those deals was a Beverly Hills advisory firm, CDR Financial Products, which has been indicted along with several employees on conspiracy and fraud charges.

A GIC is similar to a certificate of deposit, but its rates aren’t advertised publicly. Instead, towns rely on advisory firms such as CDR to solicit competing offers. And here, as alleged in the indictment, is how the bid rigging worked: 

In the bid-rigging deals, CDR gave false information to municipalities and fed information to bankers allowing them to win with lower interest rates than they were otherwise willing to pay, the indictment says. Banks took their illegal gains from the additional returns and paid CDR kickbacks.

Municipal bond-rigging charges are hardly new. They have been floating around for year and years, and Florida has been one of those states where allegations have been numerous. In 2008, Florida's state attorney general issued an 11-page document called "Antritrust Civil Investigative Demands" to 38 firms and subsidiaries, including Merrill Lynch, Bank of America, JPMorgan Chase, AIG SunAmerica Life Assurance Co., and GE Funding Capital Market Services Inc. Florida asked for information about every GIC and municipal bond derivative sold during a 10-year period, including all payments made to any persons in connection with these types transactions and the profits realized from their sales.

In this latest round, Florida's state attorney general is again investigating, as are those in California and Connecticut.

In one case last  month, a federal judge in New York ruled this week that California's San Mateo County and other California agencies could proceed with a lawsuit accusing Goldman Sachs, JPMorgan Chase, Citigroup, Morgan Stanley and others of colluding to pay below-market interest rates when governments bought GICs and passed kickbacks to each other in lieu of competing for contract bids. Here's more on that case.

Here's what Charlie Anderson, who retired in 2007 as head of field operations for the Internal Revenue Service’s tax-exempt bond division, told Bloomberg about how rigged the whole investment process was:

"It was so commonplace that people talked about it on the phones of their employers and ignored the fact that they were being recorded.”

Anderson told Bloomberg he referred scores of cases to the Justice Department when he was with the IRS. He estimates that bid rigging cost taxpayers billions of dollars. Anderson said prosecutors are lining up conspirators to plead guilty and name names, adding:

"This will go on for a long time and a lot of people will be indicted."

-- Robert Trigaux, Times Business Columnist

[Last modified: Tuesday, June 1, 2010 11:27am]


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