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Advisory firms raided in FBI bid-rig probe

A Beverly Hills office is among those searched for evidence of possible collusion in investments sold to public agencies.

November 17, 2006|E. Scott Reckard | Times Staff Writer

The FBI raided financial firms on both coasts, including Beverly Hills-based CDR Financial Products, as part of an investigation into possible bid rigging on investments sold to public agencies, federal authorities and the firms said Thursday.

Federal authorities also seized information from at least one municipal bond insurer in connection with the probe. Another of the companies raided, Investment Management Advisory Group of Pottstown, Pa., said the investigation was industrywide and had resulted in subpoenas to a number of other firms.

CDR Financial and the other companies help cities, counties and public agencies invest money generated by bond sales in guaranteed investment contracts. Such contracts are used to allow the proceeds of bond issues to earn interest until they are spent on public projects.

CDR said it was cooperating with the investigation and remained open for business.

"The firm believes it has acted appropriately in all of the financings under review," CDR said in a statement.

The 20-year-old company, which employs about 25 people nationwide, said it had provided advice on $158 billion in transactions, including deals to invest municipal-bond proceeds.

For The Record
Los Angeles Times Saturday November 18, 2006 Home Edition Main News Part A Page 2 National Desk 1 inches; 64 words Type of Material: Correction
Investment probe: An article in Friday's Business section about an investment bid-rigging probe reported that Financial Security Assurance Holdings Ltd. of New York had been searched by FBI investigators and implied that it had been subpoenaed by agencies including the IRS. In fact, the company has not been searched and has been subpoenaed only by the Justice Department and the Securities and Exchange Commission.

FBI agents and criminal investigators from the Internal Revenue Service served a search warrant on CDR about 6 a.m. on Wednesday and remained there all day, said Laura Eimiller, an FBI spokeswoman in Los Angeles.

She said details weren't available because a judge had sealed the search documents.

A U.S. Justice Department spokeswoman in Washington, Cynthia Magnuson, said the agency's antitrust department was investigating the possibility of anti-competitive practices in the municipal bond industry. She wouldn't elaborate.

Statements issued by CDR and several other firms said they had been searched as part of a 3-year-old investigation by federal agencies into suspected collusion in the market for guaranteed investment contracts.

Municipal bond issuers are required to select providers of such contracts through competitive bids, and generally hire brokers to determine which bid is best.

Bidding in any industry can be rigged if one provider submits a realistic offer and the others agree to propose terms so poor that they are certain to be passed over.

In such a scheme, participants typically divvy up the business by taking turns submitting the realistic offer.

Subpoenas in the case have been issued by the Securities and Exchange Commission in addition to the Justice Department and the IRS, said Financial Security Assurance Holdings Ltd., a New York municipal bond insurer that also was searched.

Financial Security, a unit of European financial services group Dexia, said it "is not aware of any specific allegations concerning its own practices."

FBI investigators also seized files and copied computer hard drives at Investment Management Advisory Group. Like CDR, the Pennsylvania firm acts as a broker for municipal bond issuers. It said it was cooperating with the antitrust investigation.

"It is our understanding that subpoenas have been issued to numerous other firms and that the investigation is industrywide," Investment Management said in a statement. "We are confident that our business practices and employees will be fully vindicated as this investigation continues."

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