http://uk.us.biz.yahoo.com/ap/091029/us_muni_bonds_probe.html?.v=9

AP
Calif. firm, execs charged in bond bid-rigging
Thursday October 29, 8:28 pm ET
By Devlin Barrett, Associated Press Writer
Calif. firm, executives linked to NM governor charged in municipal bond bid-rigging


WASHINGTON (AP) -- A politically connected financial firm and two of its executives were indicted Thursday for what prosecutors say was a bid-rigging scheme in the municipal bond business.
The charges in the nine-count indictment filed Thursday in Manhattan federal court against CDR Financial Products Inc. are the first resulting from the Justice Department's probe of the mammoth municipal bonds industry. CDR, based in Beverly Hills, Calif., has also come under scrutiny for its ties to New Mexico Gov. Bill Richardson.

The indictment alleges that two CDR executives and one former executive from the firm engaged in bid-rigging conspiracies in which CDR was hired by public entities that issue municipal 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.

CDR is also known as Rubin/Chambers, Dunhill Insurance Services Inc.

Prosecutors say CDR's company'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 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 against them, the three men face a maximum prison sentence of 20 years.

Rubin's lawyer 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 men could not immediately be located.

The company could face a maximum fine of $100 million for the bid-rigging charge.

Federal prosecutors in New Mexico had also investigated CDR for its links to Richardson, the Democratic governor. The investigation forced Richardson to bow out of a possible Cabinet position in the Obama White House.

Rubin and his firm contributed $110,000 to Richardson political committees from 2003 to 2005. The largest of those contributions, $75,000, was made less than a week before CDR was selected in June 2004 by the New Mexico Finance Authority to handle the reinvestment of idle bond proceeds.

CDR was hired as a financial adviser on state transportation bond deals, which generated almost $1.5 million in fees for CDR in 2004-2005.

Thursday's indictment does not mention Richardson, but it does refer to a May 20, 2004, call allegedly placed between people in New Mexico and New York in which a bid was rigged. Two months later, a state housing agency began receiving interest payments at what investigators say was an artificially reduced rate.

Richardson's deputy chief of staff, Gilbert Gallegos, said the investigation in New Mexico concluded without indictments.

http://www.cdrfp.com
and its nothing new:

SEC Settles Enforcement Actions Against Municipal Bond Offerings Participants for Violations That Put at Risk the Bonds' Tax-Exempt Status
FOR IMMEDIATE RELEASE
2007-208

Washington, D.C., September 28, 2007 - The Securities and Exchange Commission today announced settled enforcement actions against two California companies for their failure to disclose a fee agreement that created a risk to investors that interest on $650 million of municipal bonds might lose its tax-exempt status. The charges against CDR Financial Products, Inc. (formerly known as Chambers, Dunhill, Rubin & Co.) and Anchor National Life Insurance Company, (now doing business under the name of AIG SunAmerica Life Assurance Company) relate to three municipal bond offerings in Florida.

Chairman Christopher Cox said, "Municipal bond investors deserve full and fair disclosure of the important facts about their investments, including particularly the facts that bear on the tax status of their bonds. Today's enforcement actions demonstrate our continued commitment to upholding integrity in this critical market, and the protection of investors in municipal bonds."

Linda Chatman Thomsen, Director of the Commission's Division of Enforcement," said "The tax-exempt status of municipal bonds is of paramount importance to investors who buy them. In these bond offerings, information was not disclosed that could have jeopardized this status. These enforcement actions reaffirm disclosure obligations that provide important protection to municipal bond investors."

David Nelson, Director of the SEC's Miami Regional Office, said, "Our dedication of staff and resources to these enforcement actions should remind participants in municipal bond offerings that we remain committed to protecting those who invest in the bonds."

Martha Mahan Haines, Chief of the SEC's Office of Municipal Securities, added that, "CDR and Anchor served specialized functions in certain municipal bond offerings. Their fee agreement could have affected the tax-exempt status of the bonds. As a result, CDR and Anchor should have made sure it was disclosed."

The separate actions both relate to three bond offerings in Florida in 1999 and 2000. The Commission's Orders find that Anchor served as the credit enhancement provider, and that CDR served various roles, in the three offerings. The Commission's Orders further find that the existence of the fee agreement between CDR and Anchor was material for several reasons. Among other things, the bond proceeds were to be used for originating loans, and therefore CDR's receipt of payment on unloaned bond proceeds created a potential conflict with the offerings' purpose.

In addition, tax regulations require bond issuers to have a reasonable expectation that most of the bond proceeds would be loaned out within three years. Without knowledge of the fee agreement, the issuers made calculations, disclosures and certifications relating to their reasonable expectation regarding loan origination within the required time without having all information that was material to that issue. Moreover, the fee agreement also created a risk that the Internal Revenue Service would declare the bonds to be arbitrage bonds, with accompanying potential negative tax consequences.

The Commission's Orders also find that in one bond offering, CDR executed a certificate that was misleading in light of the undisclosed fee agreement.

The Commission's Order against CDR finds that CDR violated Sections 17(a)(2) and (3) of the Securities Act of 1933 (Securities Act). The Commission's Order against Anchor finds that Anchor was a cause of violations of Section 17(a)(2) of the Securities Act. Both parties consented to a cease-and-desist order against further violations of those provisions without admitting or denying the Commission's findings.

The SEC acknowledges the assistance of the Internal Revenue Service in this matter.