Florida's investigation into bid rigging in municipal bonds widened this week with reports that several of the country's largest banks may have been involved in a nationwide conspiracy.
According to federal indictments, the CDR Financial Products of Beverly Hills, Calif., 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.
Bloomberg News reported that the banks took their illegal gains from the additional returns on Guaranteed Investment Contracts and paid CDR kickbacks. Among the banks named were: Citigroup, JPMorgan Chase, Lehman Brothers and Wachovia.
The alleged conspiracyincluded more than 200 deals involving about 160 state agencies, local governments and non-profits involving tens of billions of tax dollars.
The Florida Attorney General's Office, through spokeswoman Ryan Wiggins, said, "We have been coordinating with other states on a multi-state investigation into this issue since April 4, 2008."
In 2008, Attorney General Bill McCollumissued an 11-page document called "Antitrust Civil Investigative Demands" to 38 firms and subsidiaries, including Merrill Lynch, Bank of America, JPMorgan Chase, AIG SunAmerica Life Assurance Co. and GE Funding Capital Market Services Inc.
The AG's office said that Florida asked for information about every GIC and municipal bond derivativesold during a 10-year period, including all payments made to any persons in connection with these types of transactions and the profits realized from their sales.
A GIC is similar to a certificate of deposit, but its rates arent advertised publicly. Instead, towns rely on advisory firms such as CDR to solicit competing offers.
Employees at CDR Financial Products have been indicted on a series of conspiracy and fraud charges.
Eighteen employees at 16 other companies, including units of General Electric Co., UBS AG and FSA, then a unit of Brussels lender Dexia SA, are also cited as co-conspirators by the Justice Department, according to the list under seal. None have been charged in the case.
CDR signed off on interest-rate swaps to municipalities, as banks took hidden fees sometimes 10 times as much as they charged on fixed-rate bond deals, according to data compiled by Bloomberg.
Authorities called the broadening CDR investigation a window on how Wall Streets biggest banks brazenly scammed government entities.
The whole investment process was rigged across the board, Charlie Anderson, who retired in 2007 as head of field operations for the Internal Revenue Services tax-exempt bond division, told Bloomberg News.
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 told Bloomberg he referred scores of cases to the Justice Department when he was with the IRS. He estimates that bid rigging cost taxpayers billions of dollars. Anderson said prosecutors are lining up conspirators to plead guilty and name names.
This will go on for a long time and a lot of people will be indicted, he said.
At least five former bankers with New York-based JPMorgan conspired with CDR to rig bidding on investment deals sold to local governments, according to the Justice Department list now under seal.
A key witness in the governments case is an unidentified former banker, according to a civil lawsuit filed by Baltimore and six other municipal borrowers against Bank of America, JPMorgan and nine other banks, Bloomberg reported.
The witness, who was employed by Bank of America starting in 1999, has laid out the inner workings of the scheme in confidential meetings with investigators, according to the civil lawsuit.
Bank of America has also been providing prosecutors with evidence since at least 2007. The bank voluntarily reported its own illegal activity and agreed to cooperate with the Justice Departments antitrust division, according to a press release from the company.
In exchange, the government promised not to prosecute the bank.
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Contact Kenric Ward at kward@sunshinestatenews.com or at (772) 559-4719.
