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Ex-CDR Financial Executives Plead Guilty in Fraud Case

Former CDR Financial Products Inc. Chief Financial Officer Z. Stewart Wolmark and Vice President Evan Zarefsky pleaded guilty in a multimillion dollar scheme to rig municipal bond investments.

The pleas today before U.S. District Judge Victor Marrero in federal court in New York came a week before opening arguments were scheduled to be heard in a trial over alleged bid- and auction-rigging in the municipal bond market. CDR founder and former chief executive officer David Rubin and his Beverly Hills, California-based firm pleaded guilty on Dec. 30.

Wolmark, 56, admitted in court today to manipulating bids during his tenure at CDR from 1998 to November 2006.

“During that period I participated with others in an agreement to allocate and rig bids,” he said. “I also knowingly participated in an agreement with others to manipulate the bids in return for inflated fees paid to CDR,” he said.

CDR was hired by public entities that issue municipal bonds to act as their broker and conduct what were to be competitive bidding process for contracts for the investment of municipal bond proceeds, according to prosecutors. Instead, CDR employees allegedly took kickbacks for running sham auctions for the investments.

Conspiracy, Wire Fraud

Wolmark and Zarefsky, 37, each pleaded guilty to two counts of conspiracy and one count of wire fraud. They face as long as 35 years in prison on all counts, the judge said.

Zarefsky told Marrero that soon after he joined CDR in April 2000, he became involved in the conspiracy.

“I knew that it was wrong but then later I subsequently came to understand that it was unlawful,” Zarefsky said.

Rebecca Meiklejohn, a lawyer with the Justice Department’s antitrust division, said today in court that her office was prepared to call four former CDR employees who have pleaded guilty in the case to testify against both defendants at the trial.

Jury selection in the case began last week and a panel was selected Jan. 4 to hear the case, lawyers said. Rubin pleaded guilty on Dec. 30.

“Through corruption and bid rigging, Zevi Wolmark and Evan Zarefsky reaped profits for their company by defrauding municipalities and denying them the competition they deserved,” said Sharis Pozen, Acting Assistant Attorney General in charge of the Justice Department’s Antitrust Division. “Our investigation into the municipal bond derivatives industry has now led to guilty pleas by 12 financial executives and charges against six others.”

Defense Lawyers

In court, Michael G. McGovern, a lawyer for Wolmark, and Daniel L. Zelenko, a lawyer for Zarefsky, told the judge they disputed the length of the sentences their clients face as calculated by the government.

Marrero said that while both men signed plea agreements with the government, neither has been guaranteed a reduced term by prosecutors. Marrero told the defendants return to court June 8.

“Today, Evan Zarefsky has accepted full responsibility for his actions,” Zelenko said after court. McGovern declined to comment.

Both men face at least $1.5 million in fines. 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, a court transcript shows.

Sham Auctions

Rubin, who prosecutors said took kickbacks for running sham auctions for investments, also faces as long as 35 years in prison and a fine of as much as $1.5 million, the U.S. said. 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.

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.

The Justice Department has filed charges against 18 former executives of financial-services firms.

The case is U.S. v. Rubin/Chambers, 09-cr-1058, U.S. District Court, Southern District of New York (Manhattan).

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