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Muni-Bond Adviser CDR Financial May Face More Federal Bid-Rigging Charges

By Martin Z. Braun - 2010-11-12T21:43:57Z

The U.S. Justice Department’s antitrust division plans to file more charges next month against a Los Angeles-based financial adviser accused of rigging bids on municipal-bond investment contracts, a government lawyer said.

The federal government expects to charge CDR Financial Products with depriving states and local governments of its so- called honest services and with defrauding the U.S. Internal Revenue Service, Rebecca Meiklejohn, a Justice Department antitrust lawyer, said today during a hearing in a Manhattan federal court. The government may bring the fresh indictment as soon as Dec. 10, she said.

Last year, prosecutors charged CDR, its founder and two other executives with conspiring to rig bidding on contracts with local governments to invest the proceeds of bond issues. The indictment claimed that CDR and its employees, who handled the bidding, chose winners in exchange for kickbacks. Taxpayers lost because the money was invested at below-market rates, the government says. The company and the three executives deny the charges.

The U.S. Supreme Court this year narrowed the honest services fraud statute to cover only bribery and kickbacks.

Defense lawyers said that the Justice Department informed them before the first indictments that it didn’t plan to file honest-services charges.

“The delay in bringing this to the court’s attention is inexplicable to me,” said Michael McGovern, an attorney with New York-based Ropes & Gray LLP, who represents former CDR Chief Financial Officer Z. Stewart Wolmark.

The government has identified 232 deals in which it says CDR rigged bids and defrauded state and local governments.

The case is U.S. v. Rubin/Chambers, Dunhill Insurance Services Inc., 09-CR-01058, U.S. District Court, Southern District of New York (Manhattan).

To contact the reporter on this story: Martin Z. Braun in New York at mbraun6@bloomberg.net;

To contact the editor responsible for this story: Mark Tannenbaum at mtannen@bloomberg.net