A New York financial adviser pleaded guilty to rigging bids for investments sold to local governments, the fifth person to admit participating in an industrywide conspiracy to profit at taxpayers' expense.
Martin Kanefsky, the former owner and chief executive officer of a Great Neck, New York, company that ran auctions for investments that localities buy with proceeds of bond issues, admitted to fraud and conspiracy charges, the Justice Department said late yesterday. The government said Kanefsky ran sham auctions allowing bidders to win deals at below-market rates. Kanefsky was the head of Kane Capital Strategies Inc., according to New York state records.
The charges are a result of an antitrust investigation begun more than three years ago into the $2.8 trillion municipal bond market. The probe has drawn in more than a dozen banks and financial services companies, including JPMorgan Chase & Co.,
Bank of America Corp. and
UBS AG, according to court records and regulatory filings.
In October, three executives from CDR Financial Products Inc., a Los Angeles advisory firm, were indicted in the probe, and all three are fighting the charges. Three other one-time employees of that firm and a former
UBS AG banker have since pleaded guilty. Last month, three former employees of a General Electric Co. finance business were also indicted.
Investment Contracts
The inquiry centers on guaranteed investment contracts, known as GICs, which municipalities buy with money raised by selling bonds. The investments allow them to earn a return until the funds are needed for schools, roads and other public works.
The U.S. Treasury Department encourages competitive bidding for GICs to ensure that localities are paid proper market rates.
Prosecutors allege that favored bankers received inside information from brokers who handled the bidding in order to carve up the market. The bankers compensated the brokers with kickbacks disguised as fees on derivative transactions known as interest-rate swaps.
The government said Kanefsky provided information to favored bidders, allowing them to lower the rate they were willing to pay municipalities and still win the deals.
A message left for Kanefsky at a telephone number listed in his name in Great Neck wasn't immediately returned. The Justice Department release said he is a resident of Great Neck.
A call to a telephone number listed for Kane Capital was answered by Kanefsky's voicemail. A message left there wasn't immediately returned.
Investment Broker
The charges against Kanefsky stem from those filed against the three former GE employees; Kanefsky's firm was one of four unidentified investment-contract brokers mentioned in their indictment last month.
Kanefsky conspired with employees of financial firms identified only as Marketer A, Marketer B-1 and Marketer B-2 on investment contract deals from 1999 through 2006, according to a copy of the charges released by the Justice Department.
Court documents obtained by Bloomberg News and now under seal identified the employees as Steven Goldberg and Peter Grimm, two of the former GE workers charged last month. After leaving GE, Goldberg went to Financial Security Assurance Holdings Ltd., a former unit of Dexia SA.
Goldberg, Grimm and Dominick Carollo, their supervisor at GE, all pleaded not guilty to fraud and conspiracy charges on July 30.
‘Shave It'
The Kanefsky charges say he gave the marketers information about rivals' bids, allowed them to change their bids after submitting them, and that he filed false certifications that such auctions were competitive.
Kanefsky's actions allowed bidders to land the deals at “artificially determined or suppressed rates” that cost his government clients, according to the charges.
In April 2005, for instance, Goldberg asked Kanefsky whether his bid for a contract was too high, according to the charges and the sealed court record. Kanefsky said that if it was, he would “shave it a little,” and later advised Goldberg to offer less than he was willing to in order to win. Goldberg cut his offer and won, according to the records.
John Siffert, an attorney for Goldberg, didn't immediately return a message left with his office seeking comment. He has previously declined to speak about the case.
