The Resolution Law Group: Three Ex-GE Bankers Convicted of Municipal Bond Bid Rigging Are Set Free

In a 2-1 ruling, the U.S. Circuit Court of Appeals in New York panel has decided that three ex-General Electric Co. bankers charged with conspiring to bilk cities in a muni bond bid rigging scam can go free because the US government waited too long to prosecute them. Reversing last year’s convictions of Dominick Carollo, Steven Goldberg, and Peter Grimm, the court dismissed the criminal case against them and ordered that they be released from prison.

According to prosecutors, the three men worked with guaranteed investment contracts that allowed municipalities to make interest on money made from bond sales until they wanted to spend on local projects. The government believes that between August 1999 and May 2004 Carollo, Goldberg, and Grimm gave three brokers, including UBS PaineWebber, kickbacks to win actions for the contracts even if it meant the bank would make interest payments that were artificially low.

A federal jury convicted the former GE bankers of defrauding the country and conspiracy to commit wire fraud. They appealed, appealed, contending that the indictment on July 27, 2010 exceeded the statute of limitations, which is six years for conspiracy to bilk the US via tax law violations and five years for conspiracy. The government disagreed, arguing that the limitations’ statute went on as long as GE was paying rates that were not competitive.

Meantime, GE on Friday consented to settle for $18.25M a class action securities case over municipal bond fixing. The plaintiffs accused the company of rigging municipal bond bids. GE is among the financial firms and lenders accused of working together to rig prices for municipal derivatives. Investors say that the price fixing of the bonds violated antitrust laws and caused them to get lower interest rates.

GE had previously settled similar securities claims made by state attorneys general for $30 million, Three years ago it settled for $70 million municipal bond rigging allegations made by the US Justice Department.

If you are a municipal bond investor who suffered financial losses you think may be due to securities fraud, contact The Resolution Law Group municipal bond fraud law firm today.

The Resolution Law Group: Muni Bonds Draw Investors But Come With Serious Risks

With many municipalities exhibiting better financial health and tax-free bonds touting pretty good returns, municipal bonds are attracting investors. However, this doesn’t mean that you, as a prospective investor, shouldn’t approach munis with caution.

Investors don’t pay a commission when they purchase a municipal bond, but they do have to pay a “markup,” which is the difference between the price paid and the broker’s cost. Unfortunately, many brokers don’t tell customers about this markup, instead focusing on the benefits of yield rather than disclosing more about the price. Because of this, most retail investors don’t know how much these trades are costing them in charges. You should know that these markups can be pretty high.

The Wall Street Journal reports that according to a study from research firm Securities Litigation and Consulting Group, out of one in 20 trades, investors that purchased $250,000 or less in municipal bonds paid a 3.04% markup or greater, which, at today’s rates, is one year’s worth of interest income (compare that to the under $10 in commission investors pay when purchasing stock from the majority of online brokers—.004% interest on $250,000; meantime, management fees for mutual funds are approximately 1% yearly. The study examined close to 14 million trades involving long-term, fixed-rate munis between April ’05 to April ’13.

The WSJ article goes on to note that the research firm’s founder, Craig McCann, says that since 2005, investors collectively have paid at least $14 billion in what he believes are excessive markups, which is at least two times the normal cost to trade a bond. He translates that to over 1 billion dollars “needlessly transferred” to dealers.

While brokers are right in that it can be very hard to find any certain trade on any day, federal rules mandate that markups must be “fair and reasonable.” Still, how this is defined lacks specificity.

Municipal Bonds
Munis are debt securities. Cities, states, counties, and other government entities issue them. Municipal bonds are used to fund daily obligations and pay for capital projects, including highways, schools, or sewer systems.

When an investor buys a municipal bond, that party is lending money to the bond issuer in return for regular interest payments and the return of principal. A municipal bond may not mature for years. However, short-term bonds do generally mature in one to three years.

The risks involved in investing in municipal bonds include call risk, credit risk, interest rate risk, and inflation risk. In addition to broker markups, investors should also know about the tax implications that may be involved, including certain taxes and benefits. You should also make sure that the person you buy the muni through is properly licensed and registered either with FINRA, a state securities regulator, or FINRA.

At The Resolution Law Group, our securities lawyers represent investors that have lost money due to municipal bond fraud.  If you suspect that you are the victim of Securities Fraud, do not hesitate to email or call please contact The Resolution Law Group at (203) 542-7275 for a confidential, no obligation consultation.

Lender Litigation, Unlawful Foreclosure, Tarp Money, Mortgage Backed Securities, Derivitives Lawsuits, Insider Trading Lawsuit, SEC Settlements, Ponzi Scheme Lawsuits, Intentional Misrepresentation, Securitized Mortgage, Class Action Securities Lawsuit, Robo-Signing Lawsuit, Lost Equity Litigation, Mortgage Lender Fraud, FINRA Fraud Lawsuit, Suing Banks, Fraudulent Misrepresentation, Short Sale Fraud, Fraudulent Business Practices, Mortgage Litigation, Complex Tort Litigation, Injunctive Relief, MERS Fraud

SEC Accuses Victorville, CA, Underwriter, and Others of Municipal Bond Fraud

The SEC has filed securities fraud charges against the city of Victorville, CA, one of the city’s officials, the Southern California Logistics Airport Authority, and Kinsell, Newcomb & DeDios, which underwrote the bonds. The SEC claims that they bilked investors by inflating valuations of property that secured a 2008 municipal bond offering.

According to the regulator, city official Keith C. Metzler and KND owner Jeffrey Kinsell and VP Janees L. Williams are to blame for misleading and false statements put out in the Airport Authority’s bond offering in April 2008. The SEC is also accusing KND of misusing over $2.7 million in bond proceeds to stay in business.

The Commission says that the Airport Authority took on a number of redevelopment projects and financed them by putting out tax increment bonds, and by April 2008 it had to issue even more bonds to refinance a portion of the debt incurred to keep going with these endeavors.

The principal amount of the new bond put out was based in part on Williams, Kinsell, and Metzler using a $65 million valuation for one of the projects, which involved the construction of airplane hangers (even though they were aware that the county assessor placed a value on the hangers that was less than 50% of that amount.) The inflated figure, however, let the airport authority put out more bonds and raise additional funds. The SEC says this led to investors being given the false information about the value of the security that was there to pay them back.

The regulator believes that the Airport Authority lent KND Affiliates, also owned by Kinsell, over $60 million in bond proceeds for the hangar project and agreed to compensate the latter with a construction management fee that was comprised of 2% of cost that was left on construction. KND Affiliates and Kinsell also allegedly took about $450,000 in fees that weren’t authorized, as well as $2.3 million in fees that the Airport Authority not only didn’t agree to but also never knew about, supposedly as compensation for managing the hangers. (The SEC believes that KND Affiliates and Kinsell concealed these fees not just from the Airport Authority but also from auditors.)

The SEC wants ill-gotten gains (along with prejudgment interest) returned, permanent injunctions, and financial penalties.

If you suspect that your institution is the victim of municipal bond fraud, do not hesitate to email or call please contact The Resolution Law Group at (203) 542-7275 for a confidential, no obligation consultation. Our municipal bond fraud attorneys are here to help institutional investors recoup losses that are a result of a financial scam or negligence. Your consultation with us is free.

Lender Litigation, Unlawful Foreclosure, Tarp Money, Mortgage Backed Securities, Derivitives Lawsuits, Insider Trading Lawsuit, SEC Settlements, Ponzi Scheme Lawsuits, Intentional Misrepresentation, Securitized Mortgage, Class Action Securities Lawsuit, Robo-Signing Lawsuit, Lost Equity Litigation, Mortgage Lender Fraud, FINRA Fraud Lawsuit, Suing Banks, Fraudulent Misrepresentation, Short Sale Fraud, Fraudulent Business Practices, Mortgage Litigation, Complex Tort Litigation, Injunctive Relief, MERS Fraud