Criminal Sentences Issued in Municipal Bond Conspiracies Involving Three Ex-Financial Services Execs Accused of Contract Bidding & FINRA Looks at Whether Financial Firms Made Bond Ballot Campaign Contributions For Municipal Underwriting Business

In the U.S. District Court for the Southern District of New York, three ex-former financial services executives have received their respective sentences for taking part in conspiracies involving contract bidding for municipal finance contracts and the municipal bond proceed investments. The defendants, Peter S. Grimm, Steven E. Goldberg, and Dominick P. Carollo, are former General Electric (GE) affiliate executives. They were convicted earlier this year.

Per evidence at the criminal trial, between 1999 and 2006, while working for the GE affiliates, the three defendants took part in different conspiracies involving different insurance companies and financial institutions. These “providers” offered an investment agreement contract to governments and agencies throughout the country. These public entities wanted to invest money from different sources, mainly proceeds from municipal bonds proceeds they had issued to raise money, for public projects.

The three men and their co-conspirators are accused of corrupting the bidding process for many of these investment agreements to raise the profitability and amount of the agreements that were awarded to the provider companies where they worked. This led to municipalities not being able to avail of competitive interest rates for investing tax-exempt bond proceeds that they were going to use for different public works projects, which cost them millions of dollars.

Carollo, who was convicted on two counts of conspiracy to commit wire fraud and defraud the US, was sentenced to 36 months behind bars and he has to pay a $50,000 criminal fine. Goldberg, who was found guilty of four counts of the same charge, got a prison term of 48 months and he must pay a $90,000 fine. Grimm, whose conviction involves 3 counts of the same crime, also received a 36-month prison term. He has to pay a $50,000 fine.

Meantime, the Financial Industry Regulatory Authority is trying to determine whether brokerage firms made bond ballot campaign contributions that resulted in them receiving campaign-related municipal underwriting business. This closer examination by the SRO comes following media reports in these allegations.

Although municipal dealers contributing to campaigns usually is not a violation of rule G-37 of the Municipal Securities Rulemaking Board, the SRO wants to look into the perception that some contributions may have been influential and if, indeed, some broker-dealers have been assisting a “municipal issuer do what it is prohibited itself from doing,” said Robert Ketchum, FINRA CEO and chairman. Ketchum made his statements at the Bond Dealers Association’s annual conference earlier this month.

FINRA has been looking closely at bond markets (which in the last year have experienced a rise in retail investors), including municipal dealer firms with business activities dealing significantly with retail-sized transactions. The SRO wants to make sure that members reveal all material facts about a transaction to customers, check that products are suitable for investors, assess the credit risks involved with a municipal bond, and refrain from pay-to-play violations to influence issuer officials.

Ex-GE Bankers Convicted of Municipal Bond Bid-Rig Scheme, Bloomberg Businessweek, October 18, 2012

Remarks by Richard G. Ketchum Chairman and Chief Executive Officer, Bond Dealers Association Annual Conference, October 11, 2012

More Blog Posts:

Reform the Municipal Bond Market, Says the SEC, Institutional Investor Securities Blog,
July 31, 2012
JPMorgan Chase to Pay $211M to Settle Charges It Rigged Municipal Bond Transaction Bidding Competitions, Stockbroker Fraud Blog, July 9, 2011

Muni Debt Reform: SEC to Proceed with Field Hearing in Alabama, Stockbroker Fraud Blog, May 29, 2011

Shepherd Smith Edwards and Kantas, LTD LLP is an institutional investment fraud law firm that represents investors throughout the US.