CDR Financial Products Inc. and its founder, David Rubin, pleaded guilty less than a week before trial on charges tied to a federal investigation of bid- and auction-rigging in the municipal bond market.
Rubin, 50, and his Beverly Hills, California-based firm were charged along with two other employees. Prosecutors said Rubin, who served as chief executive officer, took kickbacks for running sham auctions for investments.
He pleaded guilty along with the company yesterday in Manhattan federal court. Jury selection in the trial of former CDR Chief Financial Officer Z. Stewart Wolmark and Vice President Evan Zarefsky is set to begin next week and was to include Rubin as a defendant. Rubin tried unsuccessfully to have the trial postponed because his wife is in the final stages of terminal cancer.
“Mr. Rubin has accepted responsibility for his conduct and has pled guilty,” Bradley Simon, a lawyer representing Rubin, said in a phone interview after Rubin’s plea. “Mr. Rubin will now be able to direct all of his energies to caring for his wife and family during this critical time.”
Rubin, who began sobbing at the mention of his wife in the hearing yesterday, will be sentenced April 27. He was allowed to remain free on bail.
Rubin and CDR both pleaded guilty to two counts of conspiracy and one count of wire fraud, according to the government. Rubin, CDR’s sole shareholder, pleaded guilty for the company, Simon said.
Rubin faces as much as 35 years in prison. Rubin may also be ordered to pay $1.5 million, according to prosecutors. CDR faces fines of as much as $101 million. The fines may be increased to double the amount gained from the crime or double the loss to victims, the government said.
“Mr. Rubin and his firm were trusted with public money and confidence to assist municipalities with issuing bonds,” FBI Assistant Director in Charge Janice Fedarcyk said in a news release. “Contrary to his agreement and the law, Mr. Rubin shirked his responsibilities while defrauding taxpayers. Thankfully, the bid-rigging scheme, where Mr. Rubin decided the winners and losers, is over.”
Rubin’s conviction is a victory for federal antitrust prosecutors in their five-year investigation of the $3.7 trillion municipal bond market.
Bank of America Corp., JPMorgan Chase & Co., UBS AG, Wells Fargo & Co. and General Electric Co. previously acknowledged that former employees engaged in illegal activity. The companies have paid $743 million in restitution and penalties.
So far, the Justice Department has filed charges against 18 former executives of financial-services firms. With Rubin, 10 have pleaded guilty.
Michael McGovern, the attorney representing Wolmark and Dan Zelenko, the attorney representing Zarefsky, didn’t immediately respond yesterday to a request for comment about the effect of Rubin’s plea on their clients.
If Rubin cooperates with prosecutors, his testimony may bolster the government’s cases against three former GE bankers and three former UBS employees. The trial for former GE bankers Dominick Carollo, Peter Grimm and Steven Goldberg is scheduled to begin in April.
The government alleges the former executives paid kickbacks to CDR of as much as $475,000 in exchange for inside information about competing bids and used that information to win deals.
Rubin, a prominent figure in Los Angeles’s Orthodox Jewish community who serves as chairman of the Yavneh Hebrew Academy, was also a prolific Democratic fundraiser. In New Mexico, CDR received almost $1.5 million in fees for advising the New Mexico Finance Authority in 2004 after donating $100,000 to political groups affiliated with former Governor Bill Richardson.
The Justice Department investigated the deals without bringing charges.
Rubin has also given to other prominent politicians, including President Barack Obama, who received $31,800, according to Federal Election Commission records. He also donated a total of $133,000 to the Democratic National Committee and the Democratic Congressional Campaign Committee, records show.
A grand jury in New York in October 2010 indicted Rubin. The U.S. said the defendants conspired to rig bids on contracts with local governments to invest the proceeds of bond issues. The indictment alleged that CDR and its employees, who handled the bidding, chose firms to provide the contracts in advance in exchange for kickbacks.
The federal investigation has exposed “widespread corruption” in a segment of the municipal market that deals with the investment of proceeds from bond issues, the U.S. Securities and Exchange Commission has said.
States and local governments purchase investment contracts, allowing them to earn a return until the cash is needed for public-works projects.
Contracts were supposed to be awarded to banks that offered the highest return at competitive auctions arranged by advisers such as CDR.
U.S. prosecutors had amassed almost 800,000 tape recordings and 125 million pages of documents during a three-year investigation of CDR, defense lawyers said earlier this year.
Gail Rubin, Rubin’s wife of 26 years and the mother of his seven children, is in the final stages of pancreatic cancer in California, where they live, his lawyers said in papers filed with a federal appeals court in New York.
Rubin claimed his wife’s illness and concerns for his children would make it impossible for him to adequately participate in his defense.
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).