U.S. court questions ex-GE bankers' bid-rigging convictions

Reuters

By Andrew Longstreth

NEW YORK, Nov 19 (Reuters) - A U.S. appeals court on Tuesdayquestioned the convictions of three former banking executives ata unit of General Electric Co for being involved in a conspiracyto rig bids for contracts to invest municipal bond proceeds.

A three-judge panel for the 2nd U.S. Circuit Court ofAppeals in New York appeared open at times to arguments bylawyers for the executives that the indictments were filed toolate and that the convictions should be thrown out.

As part of a broad investigation into the $3.7 trillionmunicipal bond market, the government had accused the three GECapital bankers of conspiring with brokers to submitartificially low bids for municipal finance contracts.

Following a three-week trial that ended in May 2012, afederal jury in Manhattan found Dominick Carollo, StevenGoldberg and Peter Grimm guilty of conspiracy to commit wirefraud and to defraud the United States.

The case began after a grand jury indicted the three men onJuly 27, 2010. Lawyers for the defendants argued that becausethe contracts at issue were awarded before July 27, 2005, thealleged conspiracies fell outside the five-year statute oflimitations.

The government claims the conspiracy continued when thedefendants' employers paid artificially low interest rates tomunicipalities on their bond proceeds.

Judges on the 2nd Circuit panel on Tuesday peppered thegovernment's lawyer with questions over how long such paymentscould be considered as falling within the statute oflimitations.

"Is it definite or indefinite?" asked Judge Dennis Jacobs.

Judge Chester Straub also questioned how the conspiracycould be considered ongoing when the co-conspirators were in noposition to withdraw from it.

"There is nothing to withdraw from," he said. "Everythinghas been accomplished other than the flow of money."

ECONOMIC BENEFITS

James Fredericks of the U.S. Justice Department's AntitrustDivision said economic benefits continued to flow to GeneralElectric, which was named a co-conspirator in the case.

"If the economic benefits stop accruing, the conspiracy isover," Fredericks said.

Fredericks said that a ruling for the defendants couldhamstring the government in other corporate fraud cases.

Lawyers for the defendants also faced tough questions fromthe panel. Straub voiced concern over the economic benefits thataccrued as a result of obtaining the investment contracts.

Howard Heiss of O'Melveny & Myers, an attorney for Grimm,told the appeals court that the interest payments, which arestill being made today, were not acts in furtherance of theconspiracy, but the result of the conspiracy. The government'sinterpretation "makes no sense," he said.

"It means that this conspiracy is ongoing today despite thefact that (the defendants) are in jail," he said.

The government's probe into the manipulation of themunicipal bond market has led to guilty pleas or convictions of19 individuals, the government said in July. It has alsoensnared such major financial institutions as JPMorgan Chase &Co and Bank of America Corp, which agreed to pay millions infines to resolve their roles.

Last October, Goldberg was given a four-year prison term,while Grimm and Carollo were each sentenced to three years.

The case is U.S. v. Peter Grimm, et al, 2nd U.S. CircuitCourt of Appeals, Nos. 12-4310, 12-4365, 12-4371.

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