Ex-GE Capital executives charged with fraud

By Nicole Bullock in New York  www.ft.com

Published: July 28 2010 02:37 | Last updated: July 28 2010 02:37

US authorities pushed ahead with a sweeping investigation into the $2,800bn municipal bond market with the indictment of three former executives of units of GE Capital on charges of fraud and conspiracy.

Dominick Carollo, Steven Goldberg and Peter Grimm were charged on Tuesday with fraud and conspiring to rig bids for municipal finance contracts from 1999 to 2006, the US Department of Justice said. The 12-count indictment, which was filed in a federal court in New York, only identified their employer at the time as “a group of separate financial services companies located in New York, New York ... owned or controlled by a company headquartered in Fairfield, Connecticut.”

The company is GE Capital, according to a person familiar with the matter.

GE Capital said it had co-operated and was continuing to co-operate with the investigation.

Four individuals, including Mark Zaino, a former director at UBS, the Swiss bank, have already pleaded guilty in the investigation.

At issue is what is meant to be a competitive bidding process for investment contracts used by public entities.

Financial institutions are among the providers of these investment agreements and other related municipal finance contracts.

Public entities typically hire a broker to conduct a competitive bidding process for the contract to invest money, usually raised through bond sales and earmarked for public projects.

The companies that employed Mr Carollo, Mr Goldberg and Mr Grimm all marketed financial products and services, the indictment said. They are charged with conspiring with brokers to attempt to increase the number and profitability of investment agreements and other municipal finance contracts.

“The elaborate schemes outlined in the indictment boil down to efforts by these defendants to subvert the competitive bidding process for investment agreements. In the process, they defrauded public entities ... and put bondholders at risk,” said George Venizelos, acting assistant director-in-charge at the Federal Bureau of Investigation.

According to court documents, a Beverly Hills, California-based firm known as CDR Financial Products was one of the co-conspirator brokers. Three former CDR employees have pleaded guilty in relation to this investigation and charges have been filed against three other top executives at the firm.

If convicted, each man faces a prison term and significant financial penalties.

Mr Goldberg’s lawyer John Siffert, a partner at Lankler Siffert & Wohl, declined to comment, Mr Carollo could not be reached for comment and Mr Grimm’s employer, Lamont Financial Services, said the firm had no comment.