The U.S. Justice Department Tuesday indicted three former financial services executives as part of a wide-ranging probe into fraud and manipulation of prices for municipal bond derivatives.
The 12-count indictment, filed in U.S. District Court for the Southern District of New York, charged Dominick Carollo, Steven Goldberg and Peter Grimm with participating in wire fraud schemes and separate fraud conspiracies that stretch from 1999 through 2006.
Attempts to contact the three individuals were not immediately successful.
A separate class action lawsuit identified Grimm as working for Financial Guaranty Insurance Co. (FGIC) and GE Trinity Plus and Goldberg for Financial Security Assurance (FSA). The indictment only lists their employer as “Provider B,” which was “a group of separate financial services companies located in New York, New York and was owned or controlled by a company headquartered in Fairfield, Connecticut.”
GE is headquartered in Fairfield.
Each man faces penalties of more than 20 years in prison and fines greater than $1 million if convicted.
According to the Justice Department, the three received information from CDR Financial Products, also known as Rubin/Chambers, Dunhill Insurance Services Inc., about the prices and competing bids on investment contracts that municipal bond issuers bought to park proceeds from bond sales.
“The elaborate schemes in the indictment boil down to efforts by these defendants to subvert the competitive bidding process for investment agreements,” said Federal Bureau of Investigation Acting Assistant Director-in-Charge George Venizelos.
“In the process they defrauded public entities — and therefore, the public — and put bondholders at risk,” he added.
In 2006, the Internal Revenue Service, Justice Department and Securities and Exchange Commission teamed up to investigate how banks, insurance companies and brokers and dealers had bought and sold guaranteed investment contracts.
Often there is a delay between when bonds are sold and when the money is actually spent, allowing issuers to temporarily invest the proceeds to receive a fixed rate of return that is determined by the bidding process.
After an initial sweep of information, the investigation went quiet until last summer. Since then, three executives from CDR and one from UBS AG have pleaded guilty in the case. All four have agreed to cooperate with investigators.
There is also a nationwide lawsuit against some of the firms filed by cities and local governments mainly in California.
(Reporting by Lisa Lambert; Editing by Kenneth Barry)