By: James W. Kraus
On August 31, 2012, a jury convicted three former financial services executives for wire fraud and conspiracy to commit wire fraud in relation to bidding for contracts for the investment of municipal bond proceeds and other municipal finance contracts. According to the Department of Justice, Peter Ghavami, Gary Heinz and Michael Welty participated in separate fraud conspiracies and schemes with various financial institutions and with a broker, at various time periods from as early as March 2001 until at least November of 2006.
The financial institutions offered a type of contract to state, county and local governments and agencies, and not-for-profit entities, throughout the United States, known as “investment agreements.” Public entities typically hire a broker to assist them in investing their money and to conduct a competitive bidding process to determine a winning provider. According to DOJ, the public entities were seeking to invest money from a variety of sources, primarily the proceeds of municipal bonds that they had issued to raise money for, among other things, public projects.
The jury found that Ghavami, Heinz and Welty, with their provider and broker co-conspirators, corrupted the bidding process in order to increase the number and profitability of the agreements awarded to UBS. At other times, while acting as brokers, Ghavami, Heinz and Welty and their co-conspirators, arranged for UBS to receive kick-backs in exchange for manipulating the bidding process and steering investment agreements to certain providers. The result was to deprive the municipalities of competitive interest rates for the investment of tax-exempt bond proceeds that were to be used by municipalities to refinance outstanding debt and for various public works projects.
The government presented evidence at trial that these actions cost municipalities around the country and the U.S. Treasury millions of dollars. Among the issuers and not-for-profit entities whose agreements or contracts were subject to the defendants’ schemes were the Commonwealth of Massachusetts, the New Mexico Educational Assistance Foundation, the Tobacco Settlement Financing Corporation of Rhode Island and the RWJ Healthcare Corp. at Hamilton.
The DOJ announced that a total of 20 individuals have been charged as a result of the Department’s ongoing municipal bonds investigation. Of those 20, a total of 19 individuals have been convicted or pleaded guilty, and one awaits trial. In addition, one company has pleaded guilty.
James W. Kraus, of Pietragallo Gordon Alfano Bosick & Raspanti, LLP, has been selected as the recipient of the DRI’s Albert H. Parnell Outstanding Program Chair Award which will be presented during the DRI Annual Meeting on October 17 in Chicago, Illinois. This award honors a program chair who created a dynamic educational program enhancing… Read more »Read More
James W. Kraus has been appointed to serve as the Chair of the Directors and Officers Coverage Subcommittee of the Defense Research Institute’s (DRI) Government Enforcement and Corporate Compliance Committee (GECC). DRI is the largest international membership organization of attorneys defending the interests of business and individuals in civil litigation. The GECC provides opportunities for education… Read more »Read More
The Pietragallo Law Firm and S-E-A Limited are co-hosting an event on Wednesday, February 19, 2020 titled, “Defending Trucking and Vehicle Cases in the 21st Century.” During this dynamic event which begins at 11:30am, industry leaders will review a variety of topics unique to the trucking industry including: “Accident Reconstruction through 21st Century Visualization” and… Read more »Read More
On Thursday, February 20, Pietragallo Partner Jim Marrion will sit on a panel about the Pennsylvania Unfair Trade Practices and Consumer Protection Law. During this three-hour CLE, offered through the Allegheny County Bar Association, panelists will discuss, in-depth, the issues under the Unfair Trade Practices and Consumer Protection Law that attorneys need to be aware… Read more »Read More