Zaino pleads guilty for role in fraud over municipal bonds proceeds

By Jennifer Chiou

New York, May 19 - The Department of Justice announced that a former employee of a financial services company pleaded guilty on Wednesday for his participation in bid-rigging and fraud conspiracies related to contracts for the investment of municipal bond proceeds.

According to charges filed in the U.S. District Court in New York City, Mark Zaino engaged in separate bid-rigging and fraud conspiracies with companies that provide investment agreements to state, county and local governments and agencies. The public issuers 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.

Zaino also pleaded guilty to one count of wire fraud, a news release said. He has agreed to cooperate with the ongoing investigation.

The DOJ said in court documents that from March 2001 until late 2006, Zaino was employed on the municipal bond and derivatives desk of a financial services company that was a wholly- owned subsidiary of a financial institution that acted as an underwriter for municipal bonds.

Court documents stated that Zaino engaged in a bid-rigging conspiracy from at least as early as October 2001 until March 2006.

As a part of the alleged conspiracy, Zaino, acting as a broker of investment agreements, and co-conspirator providers designated in advance which co-conspirator provider would be the winning bidder for certain investment agreements brokered by Zaino's employer, the documents said.

After the winning co-conspirator provider was designated, Zaino caused the other co-conspirator providers to submit intentionally losing bids, giving the false appearance that the investment agreements had been bid competitively in accordance with relevant Treasury regulations, the release added.

According to the court documents, kickbacks in the form of inflated or unearned fees were paid to Zaino's employer and its parent financial institution in exchange for assistance in controlling the bidding process.

As part of this conspiracy, Rubin/Chambers, Dunhill Insurance Services Inc., also known as CDR Financial Products, acting as a broker of investment agreements and other municipal finance contracts, agreed to fraudulently steer investment agreements to a certain provider, the release noted.

The bid-rigging conspiracy for which Zaino is charged carries a maximum penalty of 10 years in prison and a $1 million fine while the fraud conspiracy carries a maximum penalty of five years in prison and a $250,000 fine, the release stated.

Further, the wire fraud charge carries a maximum penalty of 20 years in prison and a $250,000 fine.

Zaino is the fourth individual to plead guilty in relation to an ongoing investigation into the municipal bonds industry. On Oct. 29, 2009, CDR, two of its employees and one former employee were indicted and charged with participating in bid-rigging and fraud conspiracies and related crimes, the release noted.

Anyone with information concerning bid rigging and related offenses may contact the Antitrust Division's New York field office (212 264-0390).

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