Federal prosecutors have mostly wrapped up criminal cases against 19 of 20 individuals, and five firms, charged with carrying out bid-rigging schemes.
Market participants wonder if the Justice Department will now turn its attention to other firms and individuals that were that were targeted during massive, multi-year criminal and civil investigations conducted by the department, the Securities and Exchange Commission, the Federal Bureau of
Investigation, the Internal Revenue Service, banking regulators and state attorneys general.
"There is a lot of mystery to this process in the eyes of the industry," said Peter Shapiro, managing director of Swap Financial Group LLC in South Orange, N.J.
"Have these individuals and firms worked out a cooperative agreement, or are the wheels of justice grinding exceedingly slowly?" he asked. "[Or] have there been decisions to pursue certain cases and not others, for reasons we don't know?"
Anthony Sabino, a white-collar defense lawyer at Mineola, N.Y.-based Sabino & Sabino PC., said additional indictments in 2013 wouldn't be surprising.
"Investigations always lead to further investigations," said Sabino, who also teaches law courses at St. John's University's Peter J. Tobin College of Business. "You cannot assume any of this is over."
Sabino has no inside knowledge of the cases, but said prosecutors are likely to pursue all leads given the public's negative attitude towards financial crimes in the wake of the recent recession.
"The general undercurrent is, we still have a great number of economic woes and tremendous distrust of the markets," he said.
The investigations made headlines in November 2006 when FBI agents raided the offices of the three major brokers of investment contracts: CDR Financial Products Inc., in Beverly Hills, Calif., Investment Management Advisory Group Inc., or IMAGE, in Pottstown, Pa., and Sound Capital Management in Eden Prairie, Minn.
The Justice Department and SEC also sent subpoenas to as many as 20 to 25 other firms, including other brokers and providers of guaranteed investment contracts (GICs) such as General Electric & Co. and AIG.
Since then, prosecutors indicted one of the biggest brokers, CDR, and 20 individuals on charges of wire fraud and conspiracy.
The firm and 13 individuals have already pleaded guilty and agreed to cooperate with the government. Among them were six former CDR staffers, including founder David Rubin.
Another six were found guilty in two trials this year at the U.S. Court for the Southern District of New York in Manhattan.
As of the end of 2012, only one individual that was indicted had not pleaded guilty or been tried for the charges: former Bank of America executive Phillip Dennis Murphy.
Prosecutors alleged that Murphy and others carried out an elaborate scheme to rig bids for GICs.
They said GIC brokers gave providers "last looks" at bids and told providers how high they would need to bid in order to win. Providers took turns winning bids, submitted intentionally losing bids and paid kickbacks to brokers, they said.
The schemes, which took place from roughly the late 1990s to mid-2000s, defrauded issuers such as cities, towns and counties, and the IRS, depriving them of millions of dollars, according to the Justice Department and other agencies.
Cases Revolved Around CDR
The cases largely revolved around CDR, and the individuals indicted worked at less than 10 firms, which raises questions about whether additional indictments may be coming, say some sources who declined to be identified due to the sensitive nature of the cases.
Initially, those familiar with the cases predicted the Justice Department would go after IMAGE and Sound Capital once it wrapped up its cases involving CDR. Market participants now wonder if the department will pursue cases against these other firms and individuals. A Justice Department spokesman said the investigation is ongoing, but declined further comment.
Former Sound Capital head Johan Rosenberg, who now runs Blue Rose Capital Advisors in Minneapolis, Minn., declined to comment.
Telephone messages left for IMAGE executives David Eckhart and Martin Stallone were not returned.
Sources noted that U.S. attorneys presented evidence, including tapes of recorded telephone conversations, during recent trials and in court documents that made clear others were involved.
"It sounds blatant from the evidence we have seen, but we don't know if there is exculpatory evidence on the other side," said Shapiro, adding that everyone must be presumed innocent until proven guilty. "It's certainly enough to raise a large eyebrow."
