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Court Documents Reveal Municipal Bond Bid-Rigging Scheme

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Court Documents Reveal Municipal Bond Bid-Rigging Scheme

11.24.10 10:01 PM

Banking executives from some of the country’s largest banks rigged bids and paid kickbacks to win deals involving municipal bond sales, a scheme that may have cost taxpayers as much as $1 billion and is the biggest criminal conspiracy in the history of the 198-year-old municipal finance market, according to documents filed in a New York Federal court.

Details of the criminal conspiracy are being reported in an upcoming issue of Bloomberg Markets Magazine.

According to Bloomberg, Douglas Campbell, once one of Bank of America Corporation’s most successful derivatives salesmen, described the conspiracy as he entered his guilty plea in a Manhattan Federal Courtroom in September.

Bloomberg reports that Campbell told U.S. District Judge William Pauley, “I had conversations prior to the bid with the broker about who the bidders were going to be and who was going to win or lose.” He admitted paying kickbacks to win deals to CDR Financial Products Inc., a Los Angeles-based firm that had been hired by municipalities to run auctions for investment contracts. He’s one of seven bankers and brokers who have pleaded guilty to conspiracy and fraud charges.

Court documents show that bankers routinely rigged bids and lied about their crimes between 1998 and 2005. Following every transaction, the bankers fraudulently signed a pledge certifying that they had adhered to U.S. Treasury Department rules barring them from seeing other bids.

The bankers attempted to cover up their scheme by using personal identification numbers to reach bidding agents directly on their BlackBerrys and routinely used personal mobile phones instead of the bank’s tape-recorded telephone lines, Bloomberg reports.

“When I participated in this scheme, I knew it was illegal,” Mark Zaino, a former banker with UBS AG, told a U.S. District Court judge in New York as he entered a guilty plea in May.

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