Calif. Firm, Execs Charged in Bond Bid-Rigging

A politically connected financial firm and two of its executives were indicted Thursday for what prosecutors say was a bid-rigging scheme in the municipal bond business.

The charges in the nine-count indictment filed Thursday in Manhattan federal court against CDR Financial Products Inc. are the first resulting from the Justice Department's probe of the mammoth municipal bonds industry. CDR, based in Beverly Hills, Calif., has also come under scrutiny for its ties to New Mexico Gov. Bill Richardson.

The indictment alleges that two CDR executives and one former executive from the firm engaged in bid-rigging conspiracies in which CDR was hired by public entities that issue municipal bonds to act as their broker and conduct a supposedly competitive bidding process.

"This case is fundamentally about collusion, the illegal rigging of a purportedly competitive bidding process," said Joseph Demarest, head of the FBI's New York office.

The result of the scam, Demarest said, was less money for the states, cities and counties that hired CDR.

CDR is also known as Rubin/Chambers, Dunhill Insurance Services Inc.

Prosecutors say CDR's company's owner and president, David Rubin, vice president Evan Zarefksy and former chief financial officer Zevi Wolmark took part in two wire fraud schemes. The three are also charged with obstructing the IRS.

Because such bonds are tax-exempt, the competitive bidding process is regulated by the IRS.

Prosecutors said the company secretly manipulated the bidding process to enrich themselves and the bidding companies at the expense of the municipalities, the IRS or both.

Under the scheme, CDR would arrange in advance which company would win a particular bid for bond business and arrange kickbacks to CDR in the form of inflated fees, authorities said.

In one 2006 state bond deal, one of the bidders agreed to pay CDR a $475,000 kickback, according to the indictment.