Three former financial services executives were indicted today for their alleged participation in fraud schemes and conspiracies related to bidding for contracts for the investment of municipal bond proceeds and other municipal finance contracts, the Department of Justice announced.
The 12-count indictment was filed yesterday in U.S. District Court in New York City. The indictment charges Dominick P. Carollo, Steven E. Goldberg, and Peter S. Grimm, all former executives at financial service companies or financial institutions, with participating in alleged wire fraud schemes and separate fraud conspiracies at various time periods from as early as 1999 until 2006.
The charged conspiracies and schemes all relate to the provision of a type of contract, known as an investment agreement, to public entities, such as state, county, and local governments and agencies throughout the United States. Major financial institutions, including banks, investment banks, insurance companies, and financial services companies are among the providers of investment agreements and other related municipal finance contracts. Public entities seek to invest money from a variety of sources, primarily the proceeds of municipal bonds that they issued to raise money for, among other things, public projects. Public entities typically hire a broker to conduct a competitive bidding process among various providers for the award of an investment agreement to invest such money. Competitive bidding for these agreements is the subject of regulations issued by the U.S. Department of the Treasury and is related to the tax-exempt status of the bonds.
The companies that employed Carollo, Goldberg, and Grimm all marketed financial products and services, including services as a provider of investment agreements. It is interesting to wonder, if the indicted individuals were in fact engaged in the alleged scheme, why wasn’t their employer aware and why was their behavior not discovered earlier? It seems that the government may have pieced this indictment together over a time period of several years in order to get the charges to stick and complete their version of the story.
The indictment alleges that Carollo, Goldberg, and Grimm conspired with various brokers to attempt to increase the number and profitability of investment agreements and other municipal finance contracts awarded to the provider companies where they were employed. According to court documents, Beverly Hills, California-based Rubin/Chambers, Dunhill Insurance Services Inc., also known as CDR Financial Products, was one of the alleged co-conspirator brokers. Supposedly, Carollo, Goldberg, and Grimm obtained from CDR and other alleged co-conspirator brokers information about the prices, price levels or conditions in competing providers’ bids, a practice known as a “last look,” which is explicitly prohibited by U.S. Treasury regulations. As a result of the information, allegedly, various providers won investment agreements and other municipal finance contracts at artificially determined price levels. In exchange for this information, Carollo, Goldberg, and Grimm submitted losing bids for certain investment agreements and other contracts when requested, and, on occasion, agreed to pay or arranged for kickbacks to be paid to CDR and other co-conspirator brokers.
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. This allegedly caused the municipal issuers to award investment agreements and other municipal finance contracts to providers that otherwise would not have been awarded the contracts if the issuers had true and accurate information regarding the bidding process. The alleged conduct affected the tax-exempt status of the underlying bonds.
According to court documents, the supposed efforts by Carollo, Goldberg, Grimm, and their co-conspirators to affect the bidding for investment contracts, and the execution of a variety of certifications that covered up their actions, also obstructed the Internal Revenue Service’s (IRS) ability to monitor compliance with U.S. Treasury regulations and impeded the IRS’s ability to determine whether municipal issuers had correctly accounted for any money that was owed to the U.S. Treasury.
Again, if the three individuals were in fact engaging in such a wide ranging and complex scheme, why was it not discovered until now, years after the scheme took place? The employers of the three individuals apparently did not notice any illegal behavior. The government is attempting to piece together their version of the story, but we will not really know what happened until the truth comes out at trial.
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.
An indictment does not mean that the individuals are guilty, or even that they did anything wrong. In order for a grand jury to indict an individual, the government presents their biased story, without having to prove any evidence, and without the individual knowing they are under investigation. An indictment merely alleges the one sided views of the federal government. All individuals are innocent until proven guilty beyond a reasonable doubt.
Douglas McNabb and other members of the firm practice and write extensively on matters involving Federal Criminal Defense, Interpol Litigation, International Extradition and OFAC Litigation.
The author of this blog is Douglas McNabb. Please feel free to contact him directly at mcnabb@mcnabbassociates.com or at one of the offices listed above.
