Conspiracy Is a Serious Charge

I wonder if the editors at Bloomberg realize the seriousness of the claim that’s being made in this article:

A telephone call between a financial adviser in Beverly Hills and a trader in New York was all it took to fleece taxpayers on a water-and-sewer financing deal in West Virginia. The secret conversation was part of a conspiracy stretching across the U.S. by Wall Street banks in the $2.8 trillion municipal bond market.

[…]

The workings of the conspiracy — which stretched from California to Pennsylvania and included more than 200 deals involving about 160 state agencies, local governments and non- profits — can be pieced together from the Justice Department’s indictment of CDR, civil lawsuits by governments around the country, e-mails obtained by Bloomberg News and interviews with current and former bankers and public officials.

“The whole investment process was rigged across the board,” said Charlie Anderson, who retired in 2007 as head of field operations for the Internal Revenue Service’s tax-exempt bond division. “It was so commonplace that people talked about it on the phones of their employers and ignored the fact that they were being recorded.”

Anderson said he referred scores of cases to the Justice Department when he was with the IRS. He estimates that bid rigging cost taxpayers billions of dollars. Anderson said prosecutors are lining up conspirators to plead guilty and name names.

Conspiracy to defraud is criminal conspiracy—a felony. Prison time. Securities fraud is one of the criminal actions that are designated under Racketeer Influenced and Corrupt Organizations Act (RICO). Assets could be seized, performance bonds required, and it could result in forfeiture. Treble damages could be involved. The sums could be astronomical. If the conspiracy can be proven and it’s as broad as is being suggested it could be earth-shattering.

Update

Yves Smith notes:

Understand further: the payments that were allegedly paid in these cases were significantly large as to require some level of management approval. There is no way management did not know this was afoot.

Exactly. That’s why I think this may be criminal enterprise kind of stuff. Sounds like a good time to be short on bank stocks.

Clusterstock has a handy summary of the Bloomberg article. Their assessment: “Holy cow!”. Holy cow, indeed. The Clusterstock article also notes that in China they execute people for stuff like this.

Basically, all of the biggest banks in the country are alleged to be involved in this activity. What happens when “too big to fail” meets “impossible to keep afloat”?

12 comments… add one
  • sam

    Somebody explain to me again why unfettered capitalism would be inherently self-correcting.

  • Don’t look at me. I’m not in favor of “unfettered capitalism”.

    To be honest I think that very few are. Most either want to fetter it or they want to define “unfettered capitalism” to suit their own likes. The argument is about how to fetter capitalism.

  • PD Shaw

    I was on a telephonic town meeting with my Congressional representative last night. At one point, we were asked to touch a number on the keypad to let him know which issue you think is most important for Congress to address now:

    1. jobs/economy
    2. wars in Afghanistan/Iraq
    3. healthcare
    4. don’t remember
    5. financial regulation

    I struggled with this, but chose 5. My fellow town-hallers disagreed, the results were roughly in the above order, with only 7% believing financial regulation is the most important.

    I stand by my pick.

  • PD Shaw

    I wonder if Giannoulias gets caught up in this. It’s his job to invest state money; maybe he lucked out because there ain’t none.

  • Somebody explain to me again why unfettered capitalism would be inherently self-correcting.

    Because it isn’t unfettered capitalism, it is crony capitalism.

    HTH, HAND

  • sam

    Verdon, do note that the sentence I wrote is in the subjunctive, not the indicative.

  • steve

    Most of my work cancelled today and I was home doing paperwork (and sneaking onto blogs). My wife had CNBC on in the background. I heard not a word on this all day. Neither did my wife. Is this for real?

    Steve

  • Yeah, that’s why I phrased my post the way I did. Here’s the DOJ press release. Some of the story appears to be original reporting by Bloomberg.

  • sam

    Heh. From the release:

    Zaino also pleaded guilty to one count of wire fraud. According to the plea agreement, Zaino has agreed to cooperate with the ongoing investigation.

    I’ll bet he did.

  • After doing a bit of googling it seems to be somethig that has been low on the radar for sometime, but could have some large consquences.

    As for corporate conspiracies, having worked someplace where we had one (pretty minor by comparison), it is questionable how high up it went. For example, BoA appears to be working with DoJ to try and get to the bottom of at least their involvement and to shed light on the involvement of others.

  • As for corporate conspiracies, having worked someplace where we had one (pretty minor by comparison), it is questionable how high up it went.

    That’s why I quoted Yves Smith’s observation to the effect that the sums involved were large enough that a claim that higher-ups were uninvolved is pretty dubious. Additionally, they’re pretty likely to get into Sarbanes-Oxley trouble if the try to take that tack.

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