White Collar Crime News

Three Former Financial Services Executives Indicted for Roles in Fraud Schemes July 28, 2010

Three former financial services executives were indicted today for their participation in fraud schemes and conspiracies related to bidding for contracts for the investment of municipal bond proceeds and other municipal finance contracts.  The 12-count indictment was filed today in U.S. District Court in New York City and it charges Dominick P. Carollo, Steven E. Goldberg, and Peter S. Grimm, all former executives at financial service companies or financial institutions, with participating in wire fraud schemes and separate fraud conspiracies at various time periods from as early as 1999 until 2006.

The charged conspiracies and schemes all relate to the provision of a type of contract, known as an investment agreement, to public entities, such as state, county, and local governments and agencies throughout the United States. Major financial institutions, including banks, investment banks, insurance companies, and financial services companies are among the providers of investment agreements and other related municipal finance contracts. Public entities seek to invest money from a variety of sources, primarily the proceeds of municipal bonds that they issued to raise money for, among other things, public projects. Public entities typically hire a broker to conduct a competitive bidding process among various providers for the award of an investment agreement to invest such money. Competitive bidding for these agreements is the subject of regulations issued by the U.S. Department of the Treasury and is related to the tax-exempt status of the bonds. The companies that employed Carollo, Goldberg, and Grimm all marketed financial products and services, including services as a provider of investment agreements.

The indictment charges that Carollo, Goldberg, and Grimm conspired with various brokers to attempt to increase the number and profitability of investment agreements and other municipal finance contracts awarded to the provider companies where they were employed. According to court documents, Beverly Hills, California-based Rubin/Chambers, Dunhill Insurance Services Inc., also known as CDR Financial Products, was one of the co-conspirator brokers. Carollo, Goldberg, and Grimm obtained from CDR and other co-conspirator brokers information about the prices, price levels or conditions in competing providers’ bids, a practice known as a “last look,” which is explicitly prohibited by U.S. Treasury regulations. As a result of the information, various providers won investment agreements and other municipal finance contracts at artificially determined price levels. In exchange for this information, Carollo, Goldberg, and Grimm submitted intentionally losing bids for certain investment agreements and other contracts when requested, and, on occasion, agreed to pay or arranged for kickbacks to be paid to CDR and other co-conspirator brokers.

The indictment also alleges that Carollo, Goldberg, Grimm, and co-conspirators misrepresented to municipal issuers or bond counsel that the bidding process was in compliance with U.S. Treasury regulations. This caused the municipal issuers to award investment agreements and other municipal finance contracts to providers that otherwise would not have been awarded the contracts if the issuers had true and accurate information regarding the bidding process. Such conduct placed the tax-exempt status of the underlying bonds in jeopardy.

According to court documents, the efforts by Carollo, Goldberg, Grimm, and their co-conspirators to control and manipulate the bidding for investment contracts, and the execution of a variety of certifications that covered up their scheme, also obstructed the Internal Revenue Service’s (IRS) ability to monitor compliance with U.S. Treasury regulations and impeded the IRS’s ability to determine whether municipal issuers had correctly accounted for any money that was owed to the U.S. Treasury.