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CDR, at root of Richardson probe, is no stranger to suits

The Beverly Hills financial advisory firm is facing several claims of receiving kickbacks.

January 06, 2009|William Heisel

The Beverly Hills financial advisory firm at the center of the investigation that derailed New Mexico Gov. Bill Richardson's hopes of becoming commerce secretary has had a series of run-ins with federal and state agencies -- and a growing list of former clients is now suing it for allegedly bilking local governments.

CDR Financial Products Inc. and its owner, David Rubin, are the subjects of continuing investigations by the Securities and Exchange Commission, the Internal Revenue Service and the U.S. Department of Justice, which became public when investigators searched CDR's offices in November 2006.

Rubin developed a niche helping state and local governments earn money on the cash raised through bond issues. Governments typically receive a lot of money from investors upfront, which can't be spent all at once. Rubin's firm advises governments on how to invest that money before it is spent on projects.

But about 20 different cities, counties and school districts are now suing Rubin's firm, alleging it steered them to banks that paid CDR kickbacks.

CDR's spokesman, Allan Ripp, disputed the allegations and said the company has always done what it's paid to do: provide sound financial advice.

"We want to emphasize that in all of these investigations and the leaks of the investigations there has never been a question of competence or performance or even ultimate value," Ripp said.

CDR is just one of many defendants in the lawsuits by local governments, which also name banks such as Bear Stearns Cos., Lehman Bros. Holdings Inc. and Bank of America Corp.

"CDR has not been a household name like Lehman and Bank of America and JP Morgan but they were integral and intertwined in the whole scheme," said Nanci Nishimura, a partner at law firm Cotchett Pitre Simon & McCarthy in Burlingame, Calif. "A lot of what we know about how these big banks were doing business was triggered by the FBI's raid on CDR's offices."

Rubin, 47, is an entrepreneur who was born in Mexico City to Israeli parents. They later moved to the Los Angeles area, where Rubin graduated from an Orthodox Jewish school. He never graduated from college but did earn a financial advisor's license before starting his own firm in 1986.

CDR was initially called Chambers, Dunhill & Rubin. But there were no partners named Chambers or Dunhill. Ripp said the names were added to make the one-man shop sound more established.

CDR eventually grew to about 25 advisors and other employees around the country, providing advice on more than $150 billion in transactions. It has since shrunk to about a dozen employees, Ripp said. He served as a housing commissioner for the city of Los Angeles from 2003 to 2005.

Rubin earned enough money over the years to buy an 8,000-square-foot home in Hancock Park with an assessed value of more than $5 million, according to property records. He has donated heavily to Israeli and Jewish charitable causes.

And he and his firm have given about $200,000 in recent years to political campaigns, mostly for Democratic candidates, including $2,300 to Barack Obama in September and $4,000 to Obama's pick for secretary of the interior, Sen. Ken Salazar (D-Colo.), when he first ran for the Senate in 2004.

CDR's name has surfaced during several political scandals, including the indictment of a city treasurer in Philadelphia. CDR was not accused of wrongdoing, but it was alluded to in the indictment as one of the firms that gave the treasurer gifts, including Super Bowl tickets, in exchange for a shot at doing business with the city.

Richardson's case involved $100,000 in donations that CDR made in 2004 to help Richardson's push to register Latino voters and to pay for the Democratic National Convention that year. A grand jury in New Mexico is investigating whether CDR won a state contract to do financial advisory work because of those donations.

"The timing of the donations is unfortunate, but they were intended to help causes that are in line with Mr. Rubin's long-held beliefs -- not to influence the bidding process," Ripp said. "Anyone who is familiar with the way these contracts are awarded would know that you can't buy your way into one."

In August, Los Angeles sued CDR and more than 40 other financial institutions for allegedly rigging bids on financial instruments, driving down the city's rate of return.

"We're filing these suits because we believe it's time these corporations are held accountable for systematically cheating our taxpayers out of tens of millions of dollars, and doing so in clear violation of state law," Los Angeles City Atty. Rocky Delgadillo said at the time.

The firm is also being sued by the counties of Fresno, San Mateo, Contra Costa, Alameda and San Diego, among others.

As evidence, one of the suits cites an e-mail in which a Bank of America employee details how the bank paid more than $45,000 in fees to CDR even though CDR "was not involved in some way in the transaction." Instead, the employee said that "the CDR fees have been part of the ongoing attempt to develop a better relationship with our major brokers," the employee wrote.

In October 2007, the SEC settled one case against CDR and AIG SunAmerica Life Assurance Co., ordering them to stop certain financial arrangements but imposing no fines. The agency had accused AIG and CDR of failing to disclose a fee arrangement they had with each other when setting up a deal to sell $650 million in tax-exempt bonds in Florida in 1999 and 2000.

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william.heisel@latimes.com

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Times researcher Scott J. Wilson contributed to this report.

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Richardson's exit hits dual fronts

Political role and Latino causes are hurt. PAGE A10

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