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Municipal Bonds Prosecutions United States v. Rubin/Chambers Dunhill Ins. Services, Inc., et al.

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

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Municipal Bonds Prosecutions United States v. Rubin/Chambers Dunhill Ins. Services, Inc., et al.

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  1. 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.

  2. 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.

  3. 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].

  4. 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.

  5. 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?

  6. 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.

  7. 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

  8. 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

  9. 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

  10. 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

  11. 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

  12. 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

  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. SeeU.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

  14. 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.

  15. 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.

  16. GX-605603 PETER GRIMM: Okay. MIKE WELTY: Okay. PETER GRIMM: Thanks. Bye.

  17. 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?

  18. GX-605604 MIKE WELTY:  Yeah. PETER GRIMM:  Good.  Alright. I’ll send in, uh, 238.

  19. 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.

  20. 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 --

  21. GX-1004958 ALEX WRIGHT: Right. GARY HEINZ: I’ve gotta get a fourth because we’re an interested party.

  22. 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. 

  23. 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 --

  24. 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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