Douglas Lee Campbell, a former senior vice president and marketer in Bank of America’s municipal derivatives group, pleaded guilty Thursday to three criminal counts for engaging in bid-rigging and fraud conspiracies connected with guaranteed investment contract and other municipal finance agreements.
The Justice Department announced that Campbell pleaded guilty to conspiracy to restrain trade, conspiracy, and wire fraud in the U.S. District Court for the Southern District of New York in Manhattan. Court documents only identify Campbell’s former employer as “Bank A, a financial institution that was a national bank.” But documents show that Campbell worked at Bank of America from about June 1998 through at least August 2002. He worked as a managing director at Piper Jaffray Fixed Income Derivatives in Minneapolis after that, according to The Bond Buyer’s Municipal Marketplace.
The Justice Department charged Campbell, Bank of America, CDR Financial Products — formerly Rubin/Chambers Dunhill Services Inc. — and others with conspiring to rig bids for GICs and other municipal securities contracts from as early as 1998 until September 2005. Initially, Campbell worked at the bank’s office in Charlotte, N.C., but later was based in New York City. His compensation and bonus were based in part on the amount of revenue generated by the municipal derivatives group.
According to the Justice Department, on numerous occasions when Bank of America was underwriter on a muni bond deal, it recommended the issuer hire CDR to broker the process for obtaining GICs or other investment agreements. In exchange, CDR and the bank would rig the bids to try to ensure the bank won one or more of the investment agreements associated with the bond issue. The bank would then pay CDR inflated or unearned fees in exchange for assistance in controlling the bidding process.
The bid-rigging caused Bank of America and other GIC providers to win investment agreements at artificially determined price levels. As a result, issuers received artificially-suppressed investment yields and false certifications from firms that the bidding process was competitive and in compliance with Treasury rules to keep the bonds tax-exempt.
Though this is the Justice Department’s seventh plea agreement in its antitrust investigation of the muni market, Bank of America and Campbell are at the center of the probe. The bank in early 2007 entered into an amnesty agreement with the Justice Department under which it agreed to voluntarily provide information related to the probe in exchange for protection from criminal charges.
The bank also agreed to pay $14.7 million to settle Internal Revenue Service charges of tax law violations in connection with that agency’s probe of GIC practices. The payment was to ensure the bonds would remain tax-exempt.
The bid-rigging allegations surfaced in part after litigation and arbitration proceedings revealed a series of e-mails in 2002 between Campbell, then a sales team member at the bank, and Phil Murphy, the bank’s managing director of municipal derivative products. Campbell was paying thousands of dollars to banks and advisers who did not appear to participate in transactions involving the bank.
He claimed the “payments” were to thank firms for swap business and to maintain relationships with them. Campbell was fired from the bank in August 2002. Murphy resigned from the bank in September, claiming he was shunned for raising concerns about Campbell’s actions.
Murphy filed a lawsuit against the bank and was later awarded $365,000 in an arbitration proceeding, according to records at the NASD, now the Financial Industry Regulatory Authority. The records were cited by Bloomberg News, which first reported the story.
The counts against Campbell carry total maximum penalties of 32 years in prison and $1.5 million of fines.
Walter Mack, a partner at the law firm of Doar Rieck Kaley & Mack in New York, which is representing Campbell, said Thursday that “Mr. Campbell has been and will continue to honor his obligations.”
Campbell’s plea agreement comes just one day after the Justice Department announced Adrian Scott-Jones, a former agent of a Florida-based guaranteed investment contract broker, pleaded guilty to two separate criminal counts of conspiracy and a count of wire fraud in connection with its muni antitrust investigation.
The Department of Justice announced Wednesday that the plea agreement had been filed in the same federal court in Manhattan federal court. According to thbe DOJ, Scott-Jones helped manipulate the bidding process for GICs, giving certain favored providers a “last look” at the bids from other providers.
The department did not identify his company, referring to it only as “Company A” and stating that it was based in Ocala and North Palm Beach, Fla. The company was an agent of “Broker A, the North American division of a foreign financial services company, which had offices in New York, N.Y.,” and marketed financial products and services, including services as a broker or adviser to various municipal issuers throughout the United States,” the Justice Department said.
Each fraud conspiracy charge carries a maximum sentence of five years in prison and a $250,000 fine. The wire charge carries a maximum prison sentence of 20 years and a $250,000 fine.
Scott-Jones also agreed to cooperate with the DOJ in its ongoing investigation.
An Internet search indicates that Scott-Jones may have most recently worked for EMG (for emerging markets), a now defunct company that had an office in Bethesda, Md., and specialized in international GICs, among other things. A firm biography of Scott-Jones says he was a consultant to Tradition (North America) Inc., a wholly owned company of Compagnie Financiere Tradition in Switzerand. It also states that in 1986 he joined EuroBrokers as a vice president for all dollar-trading products, and that firm formed a muni finance group that specialized in GICs.
Adria Perez, an associate at Kirkpatrick Stockton LLP in Atlanta, which is representing Scott-Jones, would not return calls for comment.
Lynn Hume writes for Bond Buyer.