Dennis Kintigh (Photo by Heath Haussamen)
I have been surprised at the minimal attention given to the recent indictment of the heads of CDR Financial Products — David Rubin, Zevi Wolmark and Evan Zarefsky, all of California.
CDR was the focus of attention when Gov. Bill Richardson’s nomination to be secretary of commerce was derailed. The governor’s name was withdrawn after it became known there was an ongoing federal probe into the relationship between CDR and the New Mexico Finance Authority (NMFA) and contributions to political action committees controlled by Gov. Richardson.
That investigation concluded in the late summer of 2009. U.S. Attorney Greg Fouratt sent a private letter to attorneys representing individuals under investigation stating no charges would be filed. The letter, which was leaked to the news media and for which Mr. Fouratt was criticized, contained the little-noted clause that stated that the decision to not file charges was “limited solely to each party’s conduct in NMFA’s award of financial work to CDR in 2004.”
In light of the indictments returned in the southern district of New York, it appears the clause was underappreciated.
The entire CDR controversy is long, complex and, for many, just too hard to understand. That is unfortunate, as I believe it is a significant issue that could have tremendous impact on New Mexico. Previous news articles have focused on the activities of NMFA, GRIP bonds, friends of the governor and contributions to political funds controlled by Gov. Richardson.
Indictment basics
At this time I would like to look closely at the actual indictment returned on Oct. 29 in the southern district of New York (SDNY). An indictment is a formal, written accusation of wrongdoing.
The SDNY is a federal court that covers a portion of the State of New York. The SDNY includes Manhattan, the Bronx and other counties near New York City. Populous states like New York often have multiple federal court districts, but here in New Mexico we have one federal district for the entire state.
The U.S. Attorney’s Office for the SDNY has long been considered a flagship office for the prosecution of federal financial crimes. This makes sense, as Manhattan is where Wall Street and many major financial corporations are located.
This CDR indictment alleges that nine specific crimes (or counts) were committed by Rubin, Wolmark and Zarefsky. The indictment is the result of an investigation by the FBI and the IRS in which evidence was presented to a federal grand jury. That grand jury concluded there is “probable cause” to believe the named defendants committed the specified crimes.
In my 24 years in the FBI, I have never seen a “ham sandwich” indicted, as is routinely alleged by those who wish to trivialize a federal grand jury indictment. This is very serious. Top officials in the Department of Justice signed off on this document.
The CDR indictment
The actual indictment is 39 pages long. The beginning has a very useful background section that explains the role of “brokers” in the issuance of municipal bonds.
Towns, school districts, housing authorities and other government agencies, referred to as “issuers,” raise money for specific projects by selling bonds. These bonds are loans the agency will pay off over time. The money raised by selling these bonds is spent over time. The “issuers” will routinely invest the unneeded proceeds to earn money.
Think of it like getting a home improvement loan to cover numerous repairs, and you put the money in a savings account until you need to move it to your checking account. These “savings account” investments are done with financial institutions like banks and insurance companies, who are called “providers.” The individuals who represent these “providers” are called “marketers.”
“Brokers” like CDR are supposed to get the best deal for the “issuers” by getting multiple offers from numerous “providers” as bids submitted by “marketers.” In a perfect world, a number of “marketers” send in sealed bids promising specific returns on investments to the “broker.” The “broker” then opens the bids and picks the “provider” offering the best deal.
The federal grand jury indictment charges that CDR (the “broker”) rigged the bids with corrupt “providers” through crooked “marketers.” “Issuers” were cheated out of a fair return on the taxpayer’s money, while CDR and their cronies got kickbacks, the indictment alleges.
It is claimed in the indictment that this scheme started back in 1998 and was ongoing until at least November 2006. The first count listed in the indictment is “restraint of interstate trade and commerce,” which addresses the bid-rigging allegation.
Counts 2 and 3 are conspiracy. “Conspiracy” is an agreement to commit an illegal act. Such an agreement is a crime in itself if some action occurred to fulfill the agreement, an “overt act.” Because it is an ongoing criminal enterprise, events that occur outside the statute of limitations can be presented at trial. The government must prove the agreement existed and that an “overt act” was committed (unless it’s a drug crime).
Count 2 alleges an agreement between CDR and a company only identified as “Provider A.” The overt acts allegedly involve CDR executives and “Marketer A,” the indictment says. Phone calls and events that occurred in late October 2003 are listed in the indictment.
Count 3 alleges a similar scheme involving “Provider B,” Marketers B-1 and B-2 and a “state housing agency.” This count identifies a phone call from New Mexico on May 20, 2004, as an overt act. Although reference is made to a “state housing agency” together with a call from New Mexico, there is nothing in the indictment that links this call to the ongoing Region III Housing Authority investigation and the indictment of former State Rep. Vincent “Smiley” Gallegos.
Marketer A, B-1 and B-2 are not identified, and this is usual because they are probably cooperators who have cut a deal. The identity of Marketer A, B-1, B-2 and Provider A and B will be known prior to trial. The identities of the victim “issuers” also are not revealed because that could lead to figuring out who is cooperating.
Counts 4, 5 and 6 are “Wire Fraud,” which means money allegedly was transferred electronically across state lines to further this criminal plan.
Count 7 alleges “false statements” by Zarefsky to the FBI in November 2006. Two points here are:
• Never lie to the FBI. It’s a crime, even if you’re not under oath.
• This alleged criminal act was committed in late November 2006, which places the conspiracy well within the five-year statute of limitations and allows the prosecutors to bring in all of the alleged criminal acts that occurred six, seven or more years ago.
Count 8 alleges interfering with administration of internal revenue laws. One of the acts presented in this count refers to a “state housing agency” and a phone call on May 19, 2004.
Finally, Count 9 alleges “Fraudulent Bank Transactions” in which the kickbacks to the CDR executives were concealed.
Conclusion
This criminal indictment paints a picture of a sophisticated criminal enterprise which operated in many states, including New Mexico.
While CDR’s involvement with NMFA was not addressed, these charges from New York suggest the existence of a pattern of criminal activity that was occurring at the same time as CDR involvement in New Mexico. So what did happen in New Mexico? Perhaps we will learn much about the inner workings of CDR as the New York case unfolds.
Significantly, in the case in which Richardson and his office were under investigation, Mr. Fouratt’s letter also did not “preclude the United States or the grand jury from reinstituting such an investigation without notification.”
Rubin, Wolmark and Zarefsky will be under tremendous pressure to reach a deal with federal prosecutors. As is always the case, the individuals who come forward first with the most useful testimony will get the best deal. Their attorneys know this.
These charges, together with the recent guilty plea by Saul Meyer in a case by the New York attorney general’s office, plus the Region III Housing Authority case by the New Mexico attorney general, promise to keep allegations of corruption in the forefront of the news.
The next year could be very interesting for New Mexico politicians.
Kintigh is a Republican state representative from Roswell and a retired FBI agent.