WASHINGTON — A fourth market participant, Mark Zaino, has pleaded guilty to participating in bid-rigging and fraud conspiracies in connection with municipal investment contracts and derivatives, the Justice Department announced yesterday.

Zaino, who formerly worked on the muni derivatives and guaranteed investment contract desk at UBS AG, engaged in the bid-rigging conspiracy from as early as October 2001 until March 2006, Justice lawyers said.

As part of an agreement with federal prosecutors, he pleaded guilty to three counts: conspiracy to restrain trade, conspiracy, and wire fraud. But he has agreed to cooperate with the department’s ongoing antitrust investigation of GICs and derivatives in the municipal market, which currently centers around CDR Financial Products Inc.

In October, a grand jury indicted the firm, its founder ­David Rubin, former chief financial officer Zevi Wolmark, and vice president Evan Andrew ­Zarefsky. The firm and the three men deny they did anything illegal. A trial is tentatively scheduled to begin Sept. 12, 2011.

As part of the conspiracy, the government said that Zaino, acting as an investment agreement provider, and other co-conspirators helped run rigged auctions in return for kickbacks disguised as inflated or unearned fees, while also agreeing to funnel kickbacks to CDR, which acted as a broker.

UBS’ name was not used in Wednesday’s court filings or the October indictment. The firm is identified only as “Financial Institution A.” Zaino began working at UBS in the spring of 2001 and before that was at CDR, then called Chambers, Dunhill, Rubin & Co.

Three other former CDR employees have pleaded guilty to criminal charges and have agreed to cooperate with investigators. They are Matthew Adam ­Rothman and Douglas Alan Goldberg, former CDR vice presidents, and Daniel Naeh, who has not worked for the firm in years but was living in Israel and acting as a bidding agent on muni deals.

Doug Morris, a UBS spokesman, declined to comment.

The antitrust conspiracy is said to involve several hundred deals throughout the country, as well as nearly two dozen firms, according to a Justice Department list of co-conspirators that was inadvertently filed in court on March 24 and subsequently sealed.

In addition to UBS, the banks involved include JPMorgan, Citi, Royal Bank of Canada as well as Bank of America, the one firm that is cooperating with the Justice Department’s antitrust probe in return for indemnity from criminal charges.

As the department has pursued its criminal case, three different groups of civil suits against broker-dealers, banks, and investment brokers and providers have been filed by states and localities: one by East Coast issuers like West Virginia and Baltimore, as well as two suits by different groups of California issuers.

A law firm representing one of the California groups, which includes the ­Sacramento Municipal Utility District and Riverside, said Tuesday that four additional issuers have each filed  similar civil suits against the firms. The issuers are: the East Bay Municipal Utility District, Redwood, Richmond, and the San Francisco Redevelopment Agency.

According to these lawsuits, Zaino colluded with Bank of America on several transactions, including a 2002 forward purchase agreement and related swap transaction entered into by the Art Center College of Design in Sacramento.

He also helped manipulate auctions for a revenue fund and defeasance-escrow deposit, both entered into that year by the Puerto Rico Electric Power Authority. The criminal and civil cases are all pending before the U.S. District Court for the Southern District of New York in Manhattan.

The Justice Department’s probe became public in November 2006 when the Federal Bureau of Investigation raided the offices of Beverly Hills-based CDR, I­nvestment Management Advisory Group Inc. in Pottstown, Pa., and Sound Capital Management in Eden Prairie, Minn. No charges have yet been filed against IMAGE or Sound Capital.


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