New York’s Metropolitan Transportation Authority may hire a financial adviser that employs a target in a long-running federal investigation of bid- rigging in the U.S. municipal bond market.
MTA managers recommended hiring Lamont Financial Services Corp. to advise the nation’s largest transit agency on municipal debt sales, one of two firms to replace Goldman Sachs Group Inc. Lamont, based in Wayne, New Jersey, employs Peter Grimm, named as a co-conspirator in a U.S. Justice Department list now under seal in U.S. District Court in Manhattan.
Grimm, who hasn’t been charged, is barred from working on the MTA’s account, agency spokesman Jeremy Soffin said by e-mail. Grimm previously worked for units of General Electric Co. that sold guaranteed investment contracts to municipal issuers.
“Even though the employee at the firm being recommended as financial adviser has not been charged with a crime, has not been deposed and has not been asked to testify at a grand jury, out of an abundance of caution we have requested, and the firm has agreed, that this employee will not be involved in any MTA matters,” Soffin said.
Governments buy the contracts to invest proceeds of debt sales. The antitrust division of the Justice Department has identified units of GE Capital and 15 other companies, including JPMorgan Chase & Co. and Bank of America Corp., as participants in a conspiracy to rig auctions of the investment contracts, Bloomberg News has reported.
Broad Muni Probe
The Justice Department’s more than three-year investigation is the broadest criminal probe ever of the $2.8 trillion municipal bond market. Prosecutors say the conspiracy stretched from California to Pennsylvania and included more than 200 deals involving about 160 state agencies, local governments and nonprofits.
The government alleges that the bid-rigging conspiracy cost taxpayers by allowing the contract winners to pay below-market rates to bond issuers.
Grimm is a senior vice president at Lamont, which has 11 employees, according to the firm’s website. He didn’t return a telephone message left in his office voicemail. Robert Lamb, Lamont’s president, didn’t immediately return a call for comment.
Allison Perkins, a spokeswoman for Fairfield, Connecticut- based GE, declined to comment.
In October, a grand jury indicted CDR Financial Products Inc. founder David Rubin, its former chief financial officer and a vice president for manipulating investment-contract auctions in exchange for kickbacks. They pleaded not guilty.
The indictment says Beverly Hills, California-based CDR allowed an investment firm identified as “Provider B” and two of the manager’s employees, described as “Marketer B-1” and “Marketer B-2,” to bid last on auctions after getting information about competing offers. CDR would let “Provider B” lower the rate.
In exchange, “Provider B” would pay CDR kickbacks and agree to submit intentionally losing bids on deals steered to different investment managers.
The Justice Department list, filed on March 24 and later sealed, identifies units of GE Capital as “Provider B” and Grimm as “Marketer B-2.”
Grimm received a letter from the Justice Department in November 2007, informing him that he was a target of a grand jury investigation “concerning antitrust and other violations involving contracts related to municipal bonds,” according to New Jersey Bureau of Securities broker-registration records.
Dropping Goldman Sachs
The transit agency said yesterday that the decision to drop New York-based Goldman Sachs as its financial adviser wasn’t related to a U.S. Securities and Exchange Commission lawsuit against the bank last month that accused the bank of misleading investors in a mortgage-linked security.
Transit authority managers recommended Lamont for a three-year advisory contract after the company responded to a request for proposals. Lamont offered to charge a fee of 27 cents per $1,000 of bonds issued, with annual compensation capped at $635,000, the second-lowest cost, the authority said.
The transit authority’s finance committee is set to vote on whether to hire Lamont and Swap Financial Group LLC on May 24. The agency plans to sell about $9 billion in bonds for capital projects in the four years through 2013.