A politically connected Beverly Hills financial firm and three current or former executives were indicted Thursday on charges that they defrauded government agencies across the country by rigging bids to invest the proceeds of municipal bond offerings.
The nine-count indictment, issued by a federal grand jury and filed in U.S. District Court in Manhattan, accuses CDR Financial Products Inc. of steering business to investment firms that paid it kickbacks. Also charged in the indictment are the firm's owner and president, David Rubin; its vice president, Evan Andrew Zarefsky; and its former chief financial officer, Zevi Wolmark.
The U.S. Justice Department issued a statement describing the indictment as the first in a continuing investigation of the municipal bond industry.
A spokesman for CDR and lawyers for Zarefsky and Rubin called the government's allegations false and said they stemmed from a misunderstanding by prosecutors of the bond industry.
CDR had previously come under scrutiny in an investigation that derailed New Mexico Gov. Bill Richardson's hopes of becoming President Obama's secretary of Commerce. Thursday's indictment doesn't mention Richardson or New Mexico.
The three executives have not been arrested and intend to travel voluntarily to New York next week to make their initial court appearances, said Zarefsky's attorney, Jeffrey H. Rutherford of the law firm Crowell & Moring.
Rubin developed a niche helping local, county and state agencies invest money raised from bond issues for such things as school or road construction.
Because government agencies typically don't need to use the money immediately, they often hire companies such as CDR to arrange short-term and longer-term deals to invest the funds.
The indictment alleges that CDR engaged in a pay-to-play scheme in which investment companies secretly paid CDR kickbacks to win government contracts. The alleged scheme cost the government agencies money because the contracts did not always go to investment providers offering the best return, the indictment says.
In some instances, the grand jury found, CDR arranged for some companies to offer low-ball losing bids so that a favored company could win the contract. Between 2001 and 2005, CDR received 10 kickbacks ranging from $4,500 to $475,000, according to the indictment, which does not identify banks or government agencies involved.
"The Justice Department is committed to protecting the competitive process and will hold accountable individuals and companies who participate in illegal and anticompetitive conduct," said Assistant Atty. Gen. Christine A. Varney, who heads the Justice Department's antitrust division.
CDR spokesman Allan Ripp said the company had done nothing wrong.
"There is no way that CDR could have carried out the kind of controlled market bid-rigging that's described," Ripp said. "It's contrary to the way the market works, and it's also contrary to CDR's role in saving municipal issuers tens of millions of dollars in interest costs and managing financial risks for more than two decades. . . . The government's case is meritless."
Rubin, born in Mexico City to Israeli parents and raised in Los Angeles, founded his firm in 1986. It initially was called Chambers, Dunhill & Rubin, even though there were no partners named Chambers or Dunhill. The names were added to make the company sound more established, Ripp has said.
Through the years, the company has participated in more than $150 billion in transactions. The company's success enabled Rubin to buy an 8,000-square-foot home in Hancock Park with an assessed value of more than $5 million, according to property records.
Rubin and his company have given more than $200,000 to political campaigns, mostly for Democratic candidates, including $2,300 to President Obama's campaign in September 2008.
The Richardson investigation -- which has not resulted in criminal charges -- involved a $100,000 donation in 2004 to help Richardson solicit Latino voters and to pay for the Democratic National Convention that year.
CDR later won a New Mexico state contract to handle the reinvestment of idle bond proceeds and generated more than $1 million in fees.
In August, federal prosecutors said no charges would be filed against Richardson as a result of the investigation.