Former GE Bankers Convicted of Muni Bond Bid Scheme

Three former General Electric bankers have been found guilty of defrauding several cities and the Internal Revenue Service in a massive rigging scheme involving bids and municipal bonds. Many more convictions have already been recorded.

The three former bankers, Dominick Carollo, Steven Goldberg and Peter Grimm, have been found guilty in a Manhattan federal courtroom. They were convicted of conspiracy to commit fraud. They were found to have manipulated various auctions for municipal bond contracts.

The federal government claimed that for at least seven years, between August 1999 and November 2006, the defendants were giving “kickbacks” many brokers who were hired by various government agencies – mostly on the local level. Their goal was to win the auctions and then increase their profits along the way.

Deputy Assistant Attorney General Scott D. Hammond, who is a member of the Justice Department’s Antitrust Division, released a statement following the verdict.

Through corruption and fraud, they cheated cities and towns out of money for important public works projects.

He continued, “The defendants corrupted the competitive bidding process and defrauded municipalities across the country for years.”

The Charges

The case against each of the former GE bankers focused on guaranteed investment contracts, which cities buy with funds raised from selling bonds. The arrangement allows cities to earn money on the funds until they’re used for projects including new nursing homes, hospitals and roads – along with many other appropriate uses.

The investigation spanned five years and several federal prosecutors played a role in uncovering the scheme. The charges were a result of their efforts. Last December, General Electric Bank agreed to pay more than $70 million in an effort to resolve its part of the investigation. Meanwhile, at least four more massive banks, Bank of America Corp., JPMorgan Chase & Co., UBS AG and Wells Fargo & Co. each have acknowledged illegal activities by former employees and paid more than $670 million in restitution and penalties for their roles.

One former CDR who’s already pled guilty, testified about his role in assuring winning bids. He says he was directed by Steward Wolmark, a former financial executive for CDR. His compensation came with fees earned on future transactions. Douglas Goldberg testified about arranging for GE’s Steven Goldberg (who is not related) to submit winning bids on several deals. In at least one case, he testified Goldberg bid a 5.04 percent return for one of CDR’s clients, which was none other than the Port Authority of Allegheny County, Pennsylvania.

“We did have an agreement with them for him to win the transaction,” Douglas Goldberg testified.

I allowed him to review other bids and to reduce his bid.

15 Convictions

Including the three convictions this week, there have been 15 more convicted in the government’s investigation into the scheme, the Justice Department said in the statement. Many may recall that last December, CDR Financial Products Inc. and its founder, David Rubin, pleaded guilty less than a week before they were to be tried on bid-rigging charges. This week, the jury convicted the defendants of all the counts they faced, of conspiracy to commit wire fraud and to defraud the U.S. Carollo was found guilty of two counts, Grimm was convicted of three counts and Goldberg was convicted of four counts.

Those convicted could face a maximum of five years for each charge. The defendants won’t be sentenced until sometime in October, said U.S. District Judge Harold Baer.

One of the attorneys in this most recent case, John Siffert who represented Goldberg, declined to comment on his client’s conviction while Walter Timpone, who represents Carollo, and Howard Heiss, who represents Grimm, have yet to return phone calls requesting comments.

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