Municipal Bonds Prosecutions
United States v. Rubin/Chambers Dunhill Ins. Services, Inc., et al.
United States v. Carollo, et al.
United States v. Ghavami, et al.
Rebecca Meiklejohn, Trial Attorney
New York Field Office
Antitrust Division, United States Department of Justice
November 21, 2013
The views expressed are those of the author and do not necessarily reflect those of the United States
Department of Justice.
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GX-605507 1/24/02 at 10:50 am (Part I)
(Catholic Health Initiatives)
PETER GRIMM: Yeah, okay. So, one, exactly one
year.
MIKE WELTY: Uh, exactly one year.
PETER GRIMM: 100 million. Okay. Well, that’s great.
Unsecured?
MIKE WELTY: Unsecured.
PETER GRIMM: Oh, that’s, that’s fantastic.
MIKE WELTY: Okay.
PETER GRIMM: Uh, who’s the issuer?
MIKE WELTY: Uhm, C H I.
PETER GRIMM: C—
MIKE WELTY: Catholic Health Initiatives.
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GX-605507 (Part II)
PETER GRIMM: Okay.
MIKE WELTY: Uhm, who you wanna go against?
PETER GRIMM: Uh, who do I wanna go against? CDC.
MIKE WELTY: CDC. Uh, AMBAC?
PETER GRIMM: Yeah, you could throw AMBAC in
there. Uh, you could throw MBIA –
MIKE WELTY: Cool.
PETER GRIMM: in.
MIKE WELTY: Yeah?
PETER GRIMM: Yeah. They’re usually not that
aggressive. Uh, well, you never know. But.
MIKE WELTY: Yeah, I don’t know. I don't want to
show them [expletive].
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GX-605507
PETER GRIMM: Yeah. Yeah. You’ll wan –
MIKE WELTY: I’m gonna throw B of A in there.
PETER GRIMM: Uh, B of A, yeah.
MIKE WELTY: And Solly is [expletive] with
uncollateralized. Right?
PETER GRIMM: Uncollateralized. Yeah. Don’t,
don’t give it to be BLB, because –
MIKE WELTY: No. No.
PETER GRIMM: they, they could be aggressive and –
MIKE WELTY: Yep.
PETER GRIMM: well, AIG, you never. Well, you
know, those guys can be aggressive.
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GX-605507
MIKE WELTY: Yeah. I’m gonna throw First Union in
there, too.
PETER GRIMM: First Union. They’re usually aggressive
on the collateralized stuff, right?
MIKE WELTY: Yeah, I mean, th- these other guys,
none of these guys can do uncollateralized stuff.
PETER GRIMM: Really? I [U/I]—
MIKE WELTY: Actually, I don’t even know if they’re
gonna make it. What are they? I need at least Double-A.
They’re not even Double-A, are they?
PETER GRIMM: Ah, First Union is Double-A, aren’t they?
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GX-605507
MIKE WELTY: Is -- are they?
PETER GRIMM: Yeah. I got—
MIKE WELTY: Yeah, they have a split rating, if
they have a [U/I]—
PETER GRIMM: They have a split rating?
MIKE WELTY: Yeah.
PETER GRIMM: Oh. Uh, yeah, don’t put Patronis in there.
MIKE WELTY: No. No.
PETER GRIMM: He may get-- He’s, he’s a split rating
also.
MIKE WELTY: He [expletive] wishes. He blew it.
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Overview of Cases
• Views expressed are not purported to reflect those of the
United States Department of Justice.
• 4 cases filed charging brokers and providers
– Each group of defendants worked for one company: CDR
(broker), GE (provider), UBS (broker and provider), BOA
(provider)
• 3 resolved, one after jury selection, 2 after guilty verdicts
• We charged multiple, overlapping conspiracies involving
providers (financial companies) and brokers of investment
agreements and other municipal finance contracts
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Scope of Cases
• Most conspiracies and schemes lasted for
years, affecting dozens, if not hundreds of
individual contracts
• Contracts awarded between 1999 and 2004
• No set of objective criteria for identifying
what deals would be rigged; plenty were not
• Some evidence involving municipal swaps
in UBS case
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Nature of Charges
• All cases focused on fraud in connection
with bidding process, whether charged as
bid rigging (one case) or scheme to fraud
• Victims were issuers and, usually, the IRS
• All cases involved some transactions where
winning provider paid kickbacks to broker
– Kickbacks typically in form of inflated or
unearned “swap” fees related to
contemporaneous hedge
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Types of
Evidence Used at Trial
Witness testimony
• Some co-conspirator witness testimony about origins of
conspiracy
• Co-conspirator testimony about specific, “featured”
transactions
• Victim witnesses, including bond counsel
Recorded conversations
• contemporaneous records of defendants and co-conspirators
made by banks in ordinary course
Documents
• Key transactional documents, including certifications
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How the Bidding Was
Manipulated
• Provider-to-provider discussions and agreements
about who would bid high, who would bid low
• Broker gets provider to put in losing bid or to
lower bid (but still win) or to raise bid and win
• Broker and provider negotiate a kickback (side
payment) before bid with payment to be made
immediately or reasonably quickly
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Role of Bond Counsel
• Fraud charges require proof of reliance on
misrepresentations by victim (issuer)
• Evidence that bid documentation and certificates
routinely sent to bond counsel
– Look for qualifications and alterations
• Testimony by bond counsel regarding reliance
• Testimony by issuers that they, in turn, relied on
bond counsel
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13
Key Evidentiary Issues
• Witnesses allowed to comment on
substance of recordings they weren’t part of
–
Case law permits witnesses in a conspiracy to testify as “lay witnesses” to events
of conspiracy, particularly where language is not easy to understand, to assist jury.
See U.S. v. Rubin/Chambers, Dunhill Ins. Services, 828 F.Supp.2d 698 (S.D.N.Y.
2011); U.S. v. Ghavami, No. 10 Cr. 1217, 2012 WL 2878126 (S.D.N.Y. July 13,
2012) (Wood, J.)
• Witnesses allowed to comment on accuracy
of certifications they didn’t sign
• Overcoming lack of specific recollection of
conversations not recorded
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GX-605603 1/28/02 at 1:10 pm
(Catholic Health Initiatives)
PETER GRIMM: Peter Grimm.
MIKE WELTY: Hey, I know you’re still working on
your numbers, but can you just give me a rough indication
right now?
PETER GRIMM: Sure. How are people coming in?
Aggressive?
MIKE WELTY: Uh, yeah, you know, there’s a little mix,
well.
PETER GRIMM: There’s a little mix? Ahhh, [expletive]!
[laughs] Okay, hold on.
MIKE WELTY: Just give me a rough, rough estimate.
PETER GRIMM: Alright, let me get a-- let me pull the
thing up here. You’re calling a little earlier than I expected
but let me see.
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GX-605603
MIKE WELTY: I just-- the issuer called me and is
expecting a call in two min– three minutes. So.
PETER GRIMM: Yeah. And the market has traded... a
little bit away from the higher. I mean, right now, I mean
I’d love to get it around 246, or something like that.
But obviously, I could come in a little higher.
How are people coming in?
MIKE WELTY: Uh, still this one guy, uhm, you know, I
think it’s gonna be fairly, fairly good. So.
PETER GRIMM: Oh, really?
MIKE WELTY: Yeah. But, I’ll get, I’ll get back to you for
your –
PETER GRIMM: Okay.
MIKE WELTY: for your real bid.
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GX-605603
PETER GRIMM: Okay.
MIKE WELTY: Okay.
PETER GRIMM: Thanks. Bye.
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GX-605604 [1/28/02 at 1:15 pm] (Catholic Health Initiatives)
GX-605604 1/28/02 at 1:15 pm
(Catholic Health Initiatives)
PETER GRIMM: Peter Grimm.
MIKE WELTY: Hey Peter, Mike.
PETER GRIMM: Hey.
MIKE WELTY: Hey. Uhm, I’m gonna need you to send a
bid in. I know you said earlier 238, you know -PETER GRIMM: Mm-hmm.
MIKE WELTY: was a -- you were gonna try -PETER GRIMM: Right.
MIKE WELTY: and do that.
PETER GRIMM: Right.
MIKE WELTY: Uhm, I know that was an indication but that
looks pretty good. So.
PETER GRIMM: Okay. 238 works?
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GX-605604
MIKE WELTY: Yeah.
PETER GRIMM: Good. Alright. I’ll send in, uh,
238.
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GX-1004958 6/13/02 at 10:00 am
(Municipality of Anchorage)
GARY HEINZ: So, I need your help on another deal next
week.
ALEX WRIGHT: Okay.
GARY HEINZ: Uhm, [REDACTED] is going to bid it out.
ALEX WRIGHT: Okay.
GARY HEINZ: You probably don’t speak to [REDACTED]
that much.
ALEX WRIGHT: No.
GARY HEINZ: Or, at least that’s what [REDACTED] tells
me but where is, it’s an escrow again. And I’ll need you
guys to
put in a number, but I can help you with the number.
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GX-1004958
ALEX WRIGHT: Uh... alright whatever.
GARY HEINZ: You’ll find a way. Right?
ALEX WRIGHT: Uh...
GARY HEINZ: I’ll have him email it directly to you. I’ll
give you the number, and you just – it’s in, done. In theory.
ALEX WRIGHT: Whatever, man. Whatever.
GARY HEINZ: Yeah, whatever. I’m on my cell phone.
You’re not.
[expletive]. [expletive]. [laughs]
ALEX WRIGHT: Yeah.
GARY HEINZ: I know you don’t bid on those, but
we’ve, we’ve got to get at least four numbers in, and there’s
only three of us really competitively bidding on it so --
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GX-1004958
ALEX WRIGHT: Right.
GARY HEINZ: I’ve gotta get a fourth because we’re an
interested party.
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GX-494135 11/29/2001 at 10:40 am
(Chicago Water)
GARY HEINZ: Alright, so the escrow is going to go -ALEX WRIGHT: Rescrow.
GARY HEINZ: at 12:30.
ALEX WRIGHT: Yeah.
GARY HEINZ: I can help you out with levels on that if
need be cause -ALEX WRIGHT: I have to put a number on the escrow,
too?
GARY HEINZ: Yeah, guy!
ALEX WRIGHT: I don’t want to do that.
GARY HEINZ: Dude! I will help you with doing that.
That’s easy.
24
GX-494135
GARY HEINZ: I’ll give you the number right now. [laughs]
Trust me, you don’t have to model it if you don’t want to.
ALEX WRIGHT: Okay. I don’t even have the bid form,
do I?
GARY HEINZ: No. She hasn’t sent any of this [expletive]
out yet because they just told her that they’re doing the deal
right now.
ALEX WRIGHT: How can they? How can the seniors do
this?
GARY HEINZ: They’re [expletive] tool-- tools, dude.
It was supposed to bid December 4th. If you look in the,
in the reserve fund bid specs --
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GX-494135
GARY HEINZ: I think it says December 4th as the bid
date. I didn’t look at the reserve fund because my email
is [expletive] down right now. But anyway…
ALEX WRIGHT: I just-- I don’t like just putting in
numbers. It’s a sin.
GARY HEINZ: [laughter]
ALEX WRIGHT: You know what I’m saying?
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