April 17 (Bloomberg) -- A former executive of a New York-based tax-lien company became the seventh person to plead guilty and cooperate in a federal antitrust probe of rigged auctions of municipal tax liens in New Jersey.
Stephen Hruby, 51, admitted in federal court in Newark, New Jersey, that he helped eliminate competition from 2002 to 2009 by submitting collusive bids at tax lien auctions throughout the state, the Justice Department said today in a statement. Hruby conspired with others not to bid against one another at auctions.
“The antitrust division will not tolerate illegal conduct that harms distressed homeowners,” Sharis A. Pozen, acting assistant attorney general, said in the statement. The division will pursue “anticompetitive bid rigging schemes at municipal tax lien auctions in New Jersey and elsewhere.”
Hruby, of Hainesport, New Jersey, faces as many as 10 years in prison, although he is likely to get less time if prosecutors are satisfied with his cooperation. Hruby’s attorney, Paul Summit, declined to comment on the plea.
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 reduce that rate with each bid. A lien sold at an 18 percent interest rate suggests there was no competition for the lien, he said.
Since August, six others have pleaded guilty in the New Jersey probe, including several lawyers. At least three people have admitted guilt in auctions in Maryland.
Hruby 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 has not been accused of wrongdoing.
Hruby bought at least 10 Washington liens in 2007 in conjunction with a Sass entity called Sass Muni V DTR, according to records of the Office of Tax and Revenue for the District of Columbia.
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 attorney Robert Stein. 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.
The case is U.S. v. Hruby, U.S. District Court, District of New Jersey (Newark).
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