www.nytimes.com/2009/01/09/business/09insure.html
Bill Richardson of New Mexico to withdraw his nomination as commerce secretary offers a rare glimpse into a long-simmering investigation of possible bid-rigging, tax evasion and other wrongdoing throughout the municipal bond business.
Bill Richardson of New Mexico has said that he and his aides have acted properly. Three federal agencies and a loose consortium of state attorneys general have for several years been gathering evidence of what appears to be collusion among the banks and other companies that have helped state and local governments take approximately $400 billion worth of municipal notes and bonds to market each year. E-mail messages, taped phone conversations and other court documents suggest that companies did not engage in open competition for this lucrative business, but secretly divided it among themselves, imposing layers of excess cost on local governments, violating the federal rules for tax-exempt bonds and making questionable payments and campaign contributions to local officials who could steer them business. In some cases, they created exotic financial structures that blew up. People with knowledge of the evidence say investigators are not just looking at a few bad apples, but also at the way an entire market has operated for years.
Michael D Hausfeld, an antitrust lawyer in Washington, who is representing some of the cities, counties and states entangled in the federal dragnet, called it "one of the longest-running, most economically pervasive antitrust conspiracies ever to be uncovered in the US" Many of these municipalities say they did nothing wrong and were duped by financial firms, which they are suing.
stimulus package that may spawn infrastructure projects carried out and financed at the state and local level. States and cities issue bonds to raise money to pay for things like schools and road construction, and are supposed to follow strict rules on how the proceeds are handled for investors to receive a tax exemption on the interest. Mr Anderson estimated that as much as $4 billion a year was vanishing into the system, based on the volume of problems he saw before retirement.
Christopher Cox, the chairman of the Securities and Exchange Commission, has said oversight of the municipal bond markets is inadequate, and has urged Congress to take steps to protect both investors and taxpayers. The SEC and the Justice Department declined to discuss the details or status of their investigations, including in New Mexico, where work on municipal bonds is part of a federal grand jury investigation. Officials at the IRS said they were giving the matter high priority and had challenged the tax-exempt status of municipal bonds in a number of places but declined to describe individual cases. Christopher Taylor, who retired in 2007 as executive director of the Municipal Securities Rulemaking Board, said the evidence amassed so far included tape-recorded phone calls, in which the independent specialists who are supposed to help local governments pick their bankers could be heard telling bankers: "We want you to bid on this deal, but you're not going to get it -- you're going to get the next one. Unsuspecting governments then accepted the recommended bids, and paid too much, he said. Mr Taylor also cited evidence of banks being paid in cities where they did no work at all, apparently to reward them for throwing the business to their rivals. The business is lightly regulated, with rules governing the conduct of companies set by the municipal securities board. Municipal bond underwriters are prohibited from making campaign contributions to "buy" the business of bringing bonds to market.
In the last few years, the use of such derivatives in combination with municipal bonds has grown rapidly, market participants say. The federal inquiry appears to have started at the IRS, which was concerned that the rules for tax-exempt bonds were being trampled. "We saw this coming and went to the Department of Justice and said, Hey look! It looks as if there's been price-fixing and bid-rigging on a major scale here,' " said Mr Anderson, the retired IRS manager. The efforts have broadened into what investigators and lawyers described as a coordinated effort among the federal agencies broken down by jurisdiction.
|
http://csua.com/feed/