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Government Blows Deadline To Prosecute Ex-GE Bankers

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GENERAL ELECTRIC
The General Electric Co. (GE) logo is seen on a refrigerator displayed for sale at a Lowe's Cos. store in Torrance, California, U.S, on Thursday, Oct. 17, 2013. General Electric Co. is scheduled to release earnings figures on Oct. 18. Photographer: Patrick T. Fallon/Bloomberg via Getty Images | Bloomberg via Getty Images
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By Jonathan Stempel

NEW YORK, Dec 9 (Reuters) - A federal appeals court said the U.S. government had waited too long to prosecute three former General Electric Co bankers for conspiring to defraud cities in a municipal bond bid rigging scheme, and ordered the case to be dismissed.

Monday's ruling by a panel of the 2nd U.S. Circuit Court of Appeals in New York was issued 13 days after the court reversed the May 2012 convictions of the three bankers.

The 2-1 decision, which a dissenting judge called "misguided," is a setback for government efforts to patrol the $3.7 trillion municipal bond market, including when cities and towns might be facing financial harm long after the purported corruption took place.

More than one dozen people have pleaded guilty in a federal probe, and several companies have settled civil claims. GE on Friday reached an $18.25 million settlement of bid rigging claims by investors, and in December 2011 reached a $70 million accord with federal and state regulators.

The three former GE bankers, Steven Goldberg, Dominick Carollo and Peter Grimm, were released from prison on Nov. 27, according to the Federal Bureau of Prisons.

A U.S. Department of Justice spokesman was not immediately available for comment.


NO OVERT ACTS

The case against Goldberg, Carollo and Grimm focused on guaranteed investment contracts, which let municipalities earn interest on money raised from bond sales until they are ready to spend on local projects.

Prosecutors said that from August 1999 to May 2004, the men gave kickbacks to three brokers, among them UBS PaineWebber, to help win auctions for the contracts, even if it meant GE would make artificially low interest payments.

A Manhattan federal jury convicted the defendants of conspiracy to commit wire fraud and defraud the United States. Goldberg was sentenced to four years in prison, and Carollo and Grimm to three years each.

But in their appeal, the defendants claimed that the July 27, 2010 indictment came too late, where the statutes of limitations are five years for conspiracy and six years for conspiracy to defraud the United States by violating tax laws.

The government countered that the statute of limitations continued to run while GE was paying uncompetitive rates.

But Circuit Judge Dennis Jacobs wrote for the majority on the appeals panel that this would prolong the conspiracy until long after "overt acts" had ended, and that there had to be a cutoff point.

"The government's position must be that a conspiracy continues so long as a stream of anticipated payments contains an element of profit," Jacobs wrote, in a decision joined by Circuit Judge Chester Straub. "But that proves too much."


"PROLONGED" HARM SEEN

Circuit Judge Amalya Kearse dissented. She said it "seems to me misguided" that the majority found no sign of "continued concerted activity" that could harm society over the long term.

"The bid rigging made it possible for the provider coconspirators to win contracts that would enable them to pay interest to the municipalities at substandard rates - something no single bidder could accomplish alone - and allowed the co-conspirators to succeed in a scheme sufficiently complex to allow various coconspirators to enjoy their illegal gains at different times and for prolonged periods," she wrote.

Carollo's lawyer James Smart said he is pleased with the decision. Goldberg's lawyer David Frederick and Grimm's lawyer Howard Heiss were not immediately available for comment.

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

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