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Friday, October 30, 2009
CDR Executives Charged in N.Y.
By Journal Staff And Wire
WASHINGTON — Executives at CDR Financial Products Inc., the firm at the center of a New Mexico pay-to-play investigation involving Gov. Bill Richardson's administration, were indicted in New York on Thursday for what prosecutors described as a bid-rigging scheme in the municipal bond business.
Charges in the nine-count indictment filed Thursday in federal court in Manhattan against the California-based company are the first resulting from the Justice Department's probe of the municipal bond industry.
The indictment alleges that two CDR executives and one former executive engaged in bid-rigging conspiracies in which CDR was hired by public entities that issue the bonds to act as their broker and conduct a supposedly competitive bidding process.
"This case is fundamentally about collusion, the illegal rigging of a purportedly competitive bidding process," said Joseph Demarest, head of the FBI's New York office.
The result of the scam, Demarest said, was less money for the states, cities and counties that hired CDR.
The U.S. Justice Department decided in late August not to bring indictments in the CDR investigation in New Mexico after a yearlong investigation into whether $100,000 in political contributions made by CDR and its principals influenced the company's selection as an adviser to the New Mexico Finance Authority on the $1.6 billion GRIP bond program. It later was named to manage an escrow fund on a sole-source, no-bid contract.
CDR's selections generated almost $1.5 million in fees for the company.
In addition to CDR, former Richardson chief of staff and campaign manager Dave Contarino and UNM Executive Vice President David Harris were a focus of the federal investigation. Harris moved to UNM after working as director of the Finance Authority.
Although the decision was made not to bring charges, U.S. Attorney Greg Fouratt sent a letter to defense lawyers stating that the decision was "not to be interpreted as an exoneration of any party's conduct."
The letter went on to say that "pressure from the Governor's Office resulted in corruption of the procurement process so that CDR would be awarded such work."
Richardson has strongly denied any wrongdoing. Still, the investigation cost him a spot as Commerce Secretary in President Barack Obama's Cabinet when he announced he was withdrawing his name because the probe was ongoing.
In New York, prosecutors say CDR's owner and president, David Rubin, Vice President Evan Zarefksy and former Chief Financial Officer Zevi Wolmark took part in two wire fraud schemes. The three are also charged with obstructing the IRS.
Because such municipal bonds are tax-exempt, the competitive bidding process is regulated by the IRS.
Prosecutors said the company secretly manipulated the bidding process to enrich themselves and the bidding companies at the expense of the municipalities, the IRS or both.
Under the scheme, CDR would arrange in advance which company would win a particular bid for bond business and arrange kickbacks to CDR in the form of inflated fees, authorities said.
In one 2006 state bond deal, one of the bidders agreed to pay CDR a $475,000 kickback, according to the indictment.
The municipal bond business is huge: In 2007 and 2008, about $800 billion worth of municipal bonds were issued across the country.
If convicted of the most serious charge, the three men face a maximum prison sentence of 20 years. The company could face a maximum fine of $100 million for the bid-rigging charge.
Rubin's attorney, Donald Etra, said the charges "have no basis."
"The bottom line is that David Rubin has done nothing wrong," Etra said. "He's a brilliant businessman and a prominent philanthropist."
Lawyers for the other two could not be located Thursday.
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