DoJ inquiry nets three more indictments for municipal bond bid rigging

By Susanna Moon

Chicago, July 27 - The Department of Justice said three former financial services executives were indicted Tuesday for fraud schemes and conspiracies related to bidding for municipal bond contracts.

Dominick P. Carollo, Steven E. Goldberg and Peter S. Grimm were named in a12-count indictment filed in the U.S. District Court in New York City.

The former executives at financial service companies or financial institutions were charged with participating in wire fraud schemes and separate fraud conspiracies between 1999 and 2006.

The alleged schemes involve the provision of a type of contract known as an investment agreement to state, county and local governments and agencies throughout the United States.

The indictment charges that Carollo, Goldberg and Grimm conspired with brokers to try to increase the number and profitability of investment agreements and other municipal finance contracts awarded to the companies where they were employed, according to a Justice Department press release.

The defendants allegedly obtained from co-conspirator brokers information about the prices, price levels or conditions in competing providers' bids. This practice is known as a "last look," which is prohibited by U.S. Treasury regulations.

As a result of the information, various providers won investment agreements and other municipal finance contracts at what the Justice Department said were artificially determined price levels.

In exchange for this information, Carollo, Goldberg and Grimm allegedly submitted intentionally losing bids for investment agreements and other contracts when requested and, on occasion, agreed to pay or arranged for kickbacks to be paid to co-conspirator brokers, according to the Justice Department.

The indictment also alleges that Carollo, Goldberg, Grimm and co-conspirators misrepresented to municipal issuers or bond counsel that the bidding process was in compliance with U.S. Treasury regulations, the Justice Department said.

This caused the municipal issuers to award investment agreements and other municipal finance contracts to providers that otherwise would not have been awarded. That conduct placed the tax-exempt status of the underlying bonds in jeopardy, the release said.

The efforts to control and manipulate the bidding for investment contracts, and the execution of a variety of certifications that covered up their scheme, also obstructed the Internal Revenue Service's ability to monitor compliance with U.S. Treasury regulations and impeded its ability to determine whether municipal issuers had correctly accounted for any money that was owed to the U.S. Treasury.

"The individuals charged today allegedly participated in complex fraud schemes and conspiracies to manipulate what was supposed to be a competitive process," Christine Varney, assistant attorney general in charge of the Department of Justice's antitrust division.

"The Antitrust Division has previously indicted several individuals and their employer in this matter. Our investigation is ongoing and we will continue to prosecute those who engage in such illegal and anticompetitive behavior," Varney said.

The charges resulted from an ongoing investigation conducted by the antitrust division's New York field office, the FBI and IRS criminal investigation.

The fraud conspiracies with which Carollo, Goldberg and Grimm are charged each carry a maximum penalty per count of five years in prison and a $250,000 fine. The wire fraud charges each carry a maximum penalty per count of 20 years in prison and a $1 million fine.

Goldberg is charged with eight counts of conspiracy and two counts of wire fraud; Grimm is charged with five counts of conspiracy and one count of wire fraud; and Carollo is charged with four counts of conspiracy and one count of wire fraud.

The maximum fines for each of these offenses may be increased to twice the gain derived from the crime or twice the loss suffered by the victims of the crime, if either of those amounts is greater than the statutory maximum fine, the release noted.

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