FBI Agent: Corrupt Bankers Are Like the Mafia

Wednesday, 19 Sep 2012 01:27 PM

By Michelle Smith

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Governments and nonprofit organizations have lost huge sums of money due to bid rigging by investment banks, and federal authorities have embarked on nationwide probe and are gunning for prosecutions.

Following the recent conviction of three former UBS executives, Richard Weber, chief of the criminal investigation unit at the Internal Revenue Service, says the “convictions send a strong message to the municipal bond industry and demonstrates the commitment of the Internal Revenue Service and the Justice Department to rid the industry of corrupt practices.”

Weber was largely referring to bid rigging. Once public entities hold bond auctions, they typically hire a broker to help them invest the money and conduct a competitive bidding process for a service provider.

Editor's Note: Economist Warns: ‘Money From Heaven a Path to Hell.’ See Evidence.

“In cases like that of the UBS executives, prosecutors say the process was corrupted when bankers from different firms conspired with one another, dividing up business in advance and devising their bids in cooperation, a practice known as bid rigging” explains CNNMoney. “This allowed the winning bidders to offer the issuers lower rates of return than they would have secured through an honest process.”

The bid rigging also included accepting kickbacks for what Bloomberg describes as “last looks” of other bids.

These practices were apparently widespread and long running. In the UBS case, the Department of Justice says evidence presented at the trial dates back to as early as 2001.

It is unclear how much money was lost as a result of bid rigging. But, it's “fair to say its in the hundred of millions if not billions” of dollars, Doug Leff, assistant special agent in charge of the FBI New York field office, tells CNNMoney.

Bloomberg says Bank of America, JPMorgan Chase, UBS, Well Fargo and GE Funding Capital Market Services have paid more than $700 million to settle claims by the government.

As of the end of August, the Department of Justice reported 19 convictions or guilty pleas against individuals, one guilty plea from a company and one individual is charged and awaiting trial.

Much of the evidence that federal authorities has come courtesy of the implicated firms, as some had the tendency to record telephone conversations.

But Leff reveals that seemingly slam dunk evidence can still present challenges.

“They use certain codes — in some ways they are like the mafia or the drug dealers, except what they are trading in is more sophisticated,” he says.

Editor's Note: Economist Warns: ‘Money From Heaven a Path to Hell.’ See Evidence.

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