Tax-Lien Antitrust Probe Wins Eighth New Jersey Guilty Plea
A New Jersey investor and his company pleaded guilty in an expanding federal investigation of bid-rigging in auctions for municipal tax liens throughout the state.
David Butler, 58, admitted in federal court in Newark, New Jersey, that he helped eliminate competition by submitting collusive bids at tax-lien auctions. Butler, who faces as long as 10 years in prison, became the eighth person to plead guilty to the scheme and agree to cooperate with prosecutors in a bid for leniency at sentencing.
Butler entered the guilty plea on behalf of his corporation, DSBD LLC, which he ran with David M. Farber, who admitted his guilt on Feb. 23. DSBD managed tax-lien investments held by two funds -- CCTS Tax Liens I LLC and CCTS Tax Liens II LLC, according to court papers.
“Mr. Butler accepted responsibility for a course of conduct that he greatly wishes he had not engaged in,” said his attorney, Paul Shechtman, in an interview after the hearing.
Butler, of Cherry Hill, admitted that his role in the conspiracy lasted from 2005 to 2009. U.S. District Judge Dennis Cavanaugh set his sentencing for Aug. 6.
New Jersey municipalities seeking revenue sell about $100 million a year in local tax debt on commercial and residential property, according to Vincent Belluscio, executive director of the Tax Collectors and Treasurers Association of New Jersey.
Firms that buy liens at auction pay the tax liability in full and seek to collect from the property owner. They may earn as much as 30 percent on their investment, according to Belluscio. Beyond interest of as much as 18 percent on back taxes, the firms may add penalties of 12 percent, he said.
Bidders on the liens are supposed to compete fairly for the right to buy them and collect taxes on property. Buyers, who seek the return of their principal investment and interest, begin bidding at 18 percent interest and lower that rate with each bid.
Since August, seven others have pleaded guilty in the New Jersey probe, including several lawyers. At least three people have admitted guilt in auctions in Maryland.
Last week, Stephen Hurby pleaded guilty. He was once affiliated with a unit of M.D. Sass Investors Services Inc., a closely held manager of more than $5 billion that purchases tax liens in New Jersey and other states. M.D. Sass hasn’t been accused of wrongdoing.
The New Jersey tax lien auctions being probed by U.S. prosecutors include one on March 5, 2007, in Newfield, according to a copy of a Justice Department subpoena. Among the seven bidders at that auction were a representative of M.D. Sass and three others who later pleaded guilty to antitrust charges.
From 1998 to 2009, investors bought tens of thousands of New Jersey tax liens, according to court records. Crusader Servicing Corp. and Royal Tax Lien Services -- just two of more than a dozen companies buying liens in New Jersey in those years -- said in a civil court filing last month that they purchased a combined 28,767 liens in that time.
Crusader and Royal Tax Lien are co-owned by Royal Bank America, which operates branches in New Jersey and Pennsylvania, and by Robert Stein, an attorney. Stein has pleaded guilty in the U.S. probe. Crusader and Royal Tax liens are “subjects” of the investigation, according to a 2010 regulatory filing by Royal Bank’s parent, Royal Bancshares of Pennsylvania Inc. (RBPAA)
The case is U.S. v. Butler, U.S. District Court, District of New Jersey (Newark).
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