The on-going investigations into bid rigging in the municipal bond market are a continuing focus for the DOJ as well as the SEC. While the number of cases brought does not match those generated by the war on insider trading being waged by the Manhattan U.S. Attorney’s Office and the Commission, to date a substantial number of these case have been brought. Specifically, as a result of the coordinate efforts of the Antitrust Division of the Department of Justice, the FBI and the SEC 13 individuals have pleaded guilty to charges stemming from the on-going investigation. Three individuals have been convicted following a four week trial. The Commission has settled a number of actions. See, e.g., SEC v. GE Funding Capital Market Services, Inc., Civil Action No. 2:11-cv-07465 (D.N.J. Filed Dec. 23, 2011).
The most recent indictment names Philip Murphy, formerly an executive for a financial institution, as a defendant. He was indicted on two counts of conspiracy and one count of wire fraud as part of the on-going probe. The indictment alleges that Mr. Murphy, along with Rubin/Chambers, Dunhill Insurance Services Inc. or CDR, a broker of municipal finance contracts, and others obtained investment contracts by manipulating the bidding process under which they are awarded. These agreements are furnished by major financial institutions including banks, investment banks and insurance companies. Public entities seeking to invest money typically from the proceeds of municipal bonds invest in the instruments which have certain tax benefits. The contracts are usually awarded under a competitive bidding process administered by a broker.
Here Mr. Murphy is charged with rigging the bidding process to win business by conspiring with CDR and others. The firm manipulated the process in obtaining losing bids from other providers which is expressly prohibited by Treasury regulations. As a result certain parties won the contracts in the auction process. Municipalities paid inflated prices for the investment contracts. The charging papers also claim that Mr. Murphy obstructed the IRS in its efforts to determine if municipal issuers had correctly accounted for money that was owed to the U.S. Treasury.
In a separate count, Mr. Murphy was charged with conspiring with others to falsify bank records related to marketing profits. This permitted the conspirators to conceal kickbacks paid to CDR and others. U.S. v. Murphy (W.D.N.C Filed July 19, 2012).