Ex-Bank of America Muni Broker Enters Guilty Plea in Fraud Case
A former Bank of America Corp. executive pleaded guilty to participating in a criminal conspiracy to rig the bids on investments sold to municipal bond issuers and profit at the expense of taxpayers.
Douglas Lee Campbell, who is identified as working for “Bank A,” entered guilty pleas to fraud and conspiracy, the U.S. Justice Department said yesterday. Campbell was employed by Bank of America until 2002, when he joined Piper Jaffray Cos. (PJC), according to National Association of Securities Dealers records.
The plea marks the second time an employee of an investment bank has admitted to participating in an industrywide conspiracy to pay state and local governments below-market rates on the investments purchased with bond proceeds. The scheme stretched from California to Pennsylvania and included more than 200 deals involving about 160 state agencies, local governments and non-profits, Bloomberg News has reported.
Entered in U.S. District Court in New York, Campbell’s plea is the seventh in the continuing probe and the second in as many days. On Sept. 8, Adrian Scott-Jones of Morriston, Florida, who worked for an unidentified company that handled investment-contract auctions for local issuers, pleaded guilty to conspiracy and wire fraud, the Justice Department said.
“We have been cooperating with law enforcement for several years on this matter,” Halldin said. The bank agreed in 2007 to aid prosecutors in exchange for leniency.
Jennifer A. Olson-Goude, a spokeswoman with Piper Jaffray in Minneapolis, didn’t immediately return a message seeking comment. Campbell, who now lives in New York, left the firm by March 2007. He couldn’t be reached immediately to comment.
The investigation centers on guaranteed investment contracts, known as GICs, that municipalities buy with money raised through bond sales. The investments let them earn a return on the cash until the funds are needed for schools, roads and other public works. The U.S. Treasury Department encourages competitive bidding for the contracts to ensure that localities obtain market rates.
Prosecutors have said that favored bankers received inside information from brokers who handled the bidding, so they could carve up the market. The bankers compensated the brokers with kickbacks disguised as fees on derivative transactions known as interest-rate swaps.
Fired in 2002
Bank of America fired Campbell in 2002 for making payments to firms that provided “no apparent” services in return, according to his NASD brokerage file.
According to an e-mail by Campbell filed in a North Carolina state court case, the banker said he made payments to firms including CDR Financial Products Inc., the investment-contract broker whose founder and two senior executives were indicted in October. The three are fighting the charges. Three former employees of CDR entered guilty pleas this year.
The conspiracy also cost U.S. taxpayers, prosecutors say. In some circumstances, localities must pay the Internal Revenue Service some of the money earned by investing proceeds from tax-exempt bonds, which typically carry low yields because of the investment advantages they provide.
The charges against Campbell center on CDR. Court records released by the Justice Department say that Campbell, who was a senior vice president in the municipal derivatives group of Bank of America, paid kickbacks to CDR that were disguised as fees.
In return, CDR gave Campbell information about rivals’ bids, a practice known as a “last look” that is barred by Treasury regulations. Campbell also agreed to submit losing bids for contracts that CDR then steered to competitors, a move to make the auctions appear legitimate. The government said the conspiracy began as early as 1998.
In some cases where “Bank A” was the underwriter of bond issues, Campbell’s Charlotte-based employer recommended that public officials hire CDR, prosecutors said. CDR then worked to ensure that the bank won the investment contract purchased with the bond proceeds, the federal lawyers said.
In May, former UBS AG (UBSN) employee Mark Zaino became the first Wall Street banker to admit to a role in the conspiracy. In July, three former employees of a General Electric Co. unit that sold investment contracts were indicted in the case.
The bid-rigging conspiracy charge against Campbell carries a maximum penalty of 10 years in prison and a $1 million fine, while the fraud conspiracy could put him in jail for five years and extract a $250,000 fine, the Justice Department said. The wire-fraud charge could get him 20 years and a $250,000 fine, the government said.
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