Firm, Executives Guilty in Muni Bond Fraud

Econintersect:  A month ago GEI News reported on an SEC (Securities and Exchange Commission) settlement with Wachovia bank (now a part of Wells Fargo – NYSE:WFC) over charges that the bank committed multiple frauds in rigging muni bond auctions over a period of eight years.  On January 9 a Businessweek article revealed that two executives of CDR Financial Products Inc. plan to plead guilty to criminal felony charges in a related case.  The two are Chief Financial Officer Z. Stewart Wolmark and Vice President Evan Zarefsky.  CDR founder David Rubin and his Beverly Hills, California-based firm, had previously pled guilty on Dec. 30, 2011.

Businessweek provides some details:

Rubin and CDR both pleaded guilty to two counts of conspiracy and one count of wire fraud, according to the government. Rubin, CDR’s sole shareholder, pleaded guilty for the company, a court transcript shows.

Rubin faces as much as 35 years in prison. Rubin may also be ordered to pay $1.5 million, according to prosecutors. CDR faces fines of as much as $101 million. The fines may be increased to double the amount gained from the crime or double the loss to victims, the government said.

Kickbacks Alleged

Prosecutors allege that Rubin, who served as chief executive officer, took kickbacks for running sham auctions for investments.

The New York Times reported 30 December 2011 that Mr. Rubin was the tenth person to plead guilty to criminal charges in this case. In addition to Wolmark and Zarefsky six other individuals have been charged.

Businessweek states that, in addition to Wachovia/Wells Fargo, Bank of America Corp. (NYSE:BAC), JPMorgan Chase & Co.(NYSE:JPM), UBS AG (NYSE:UBS) and General Electric Co. (NYSE:GE) have also paid restitution and penalties to settle charges that they were associated with the fraud. A total of $743 million has been paid by the banks.

Here is some background about the settlement with Wachovia from GEI News:

The fraud is said to have occurred over eight years and have affected at least 58 transactions in 25 states and Puerto Rico.  Wachovia agreed to pay the SEC a total of $46 million and 26 states attorney general $102 million to settle the case without admitting any wrong doing.  However, 18 individuals who did business with Wachovia in this activity have been criminally charged.  This exemplifies more of the Golden Rule:  He who has the Gold makes the rules.

Editor’s note: Now let’s see. We have five huge oligarchs who pay a small percentage of one year’s profits ($743 million, with no criminal charges) to settle charges against them while a small privately held company has executives facing decades in prison and payments from the company of $100 – $200 million. That sounds fair enough, under the Golden Rule.

When is the dual standard justice system going to stop?

Sources: GEI News, The New York Times and Businessweek

Hat tip to Roger Erickson.