Thursday, May 20, 2010

Bond bid-rigging conspiracy hits state agencies and local governments; W.Va. case is noted

A Department of Justice investigation has uncovered a "a nationwide conspiracy in which financial advisers to municipalities colluded with big banks to rig bids on bond issues for states and local governments, including one of the most rural states, West Virginia.

Martin Z. Braun and William Selway of Bloomberg report that a list filed in U.S. District Court in Manhattan on March 24 says the conspirators "rigged bids on auctions for so-called guaranteed investment contracts," which hold tens of billions of taxpayer money. The alleged conspirators include "Bank of America Corp., Citigroup Inc., JPMorgan Chase & Co., Lehman Brothers Holdings Inc., Wachovia Corp. and 11 other banks," Bloomberg reports.

The alleged conspiracy stretched from California to Pennsylvania and included more than 200 deals involving about 160 state agencies, local governments and nonprofits. "The whole investment process was rigged across the board," said Charlie Anderson, who retired in 2007 as head of field operations for the Internal Revenue Service’s tax-exempt bond division. "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 estimates that bid-rigging cost taxpayers billions of dollars and said prosecutors are lining up conspirators to plead guilty and name names.

The indictment says CDR Financial Products Inc. "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," Braun and Selway report. In West Virginia, Steven Goldberg allegedly arranged to pay a kickback to CDR in exchange for being awarded the bid for contracts to manage $90 million raised with the sale of West Virginia bonds. "If this was going on in a small state like West Virginia, it must have been huge elsewhere," state Assistant Attorney General Doug Davis told Bloomberg. (Read more)

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