Florida-Based Financial Agent Pleads Guilty in Municipal Bid-Rigging Probe

A Florida man pleaded guilty to fraud in a bid-rigging conspiracy targeting U.S. state and local governments, the sixth to admit participating in arrangements designed to profit at taxpayers’ expense.

Adrian Scott-Jones of Morriston, Florida, who was an agent for an unidentified company that handled auctions of investments bought by municipalities with proceeds of bond sales, pleaded guilty to conspiracy and wire fraud, the U.S. Justice Department said. The government said Scott-Jones ran sham auctions allowing favored bidders to win deals at below-market rates.

The charges are the most recent to result from an antitrust investigation begun more than three years earlier into the way public officials invest the money they raise in the $2.8 trillion municipal-bond market. The probe has drawn in more than a dozen banks and financial services companies, including JPMorgan Chase & Co., Bank of America Corp. and UBS AG, according to court records and regulatory filings.

The conspiracy was “a scheme to deprive municipal issuers of money” by manipulating the rates they would receive on invested assets, the Justice Department said yesterday in a statement about the case, brought in U.S. District Court in Manhattan. The scheme also defrauded the U.S. Internal Revenue Service, the department said.

Scott-Jones agreed to cooperate in the investigation, which is continuing, the agency said. Attempts to reach him yesterday were unsuccessful.

Adria Perez, of Kilpatrick Stockton LLP in Atlanta, identified by a Justice Department spokeswoman as a lawyer for Scott-Jones, didn’t immediately respond to a call for comment.

Florida Company

Scott-Jones was an agent for the company, which operated out of North Palm Beach and Ocala, Florida, and served as a broker or adviser to public entities selling bonds, the Justice Department said, without naming the firm. Municipal issuers hire brokers to run competitive auctions for their offerings and for investment products they purchase.

Documents released by the Justice Department said that Scott-Jones’ employer was an agent of another unidentified financial services company that has offices in New York and is based outside the U.S.

The department said Scott-Jones engaged in conspiracies from at least August 1999 until November 2006 that gave co- conspirators information about competitors’ bids, a practice known as a “last look,” that helped unidentified co- conspirators win investment contracts at artificially set rates. Brokers and bidders are prohibited from sharing such information by U.S. Treasury regulations, the Justice department said.

Sixth Guilty Plea

This is the sixth guilty plea to come from the federal investigation, which also involves the FBI and IRS, the government said.

The inquiry centers on guaranteed investment contracts, known as GICs, which municipalities buy with money raised by selling bonds. The investments let them earn a return on the cash until the funds are needed for schools, roads and other public works.

The Treasury Department encourages competitive bidding for GICs to ensure that localities are paid market rates.

Prosecutors have alleged that favored bankers received inside information from brokers who handled the bidding in order to carve up the market. The bankers compensated the brokers with kickbacks disguised as fees on derivative transactions known as interest-rate swaps.

In October, three executives from CDR Financial Products Inc., a Los Angeles-based advisory firm, were indicted in the probe. All three are fighting the charges. Three other one-time employees of that firm and a former UBS banker have since pleaded guilty. In July, three former employees of a General Electric Co. finance unit also were indicted.

To contact the reporters on this story: William Selway in Washington at wselway@bloomberg.net; Martin Z. Braun in New York at mbraun6@bloomberg.net

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