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United States v. Ghavami

United States District Court, S.D. New York

May 15, 2014

UNITED STATES OF AMERICA
v.
PETER GHAVAMI, GARY HEINZ, and MICHAEL WELTY, Defendants

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[Copyrighted Material Omitted]

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For Investment Management Advisory Group, Inc., David Eckhart, Movants: Christopher R. Hall, PRO HAC VICE, Jennifer L. Beidel, Saul Ewing LLP (PA), Philadelphia, PA; Fred F. Fielding, PRO HAC VICE, Morgan, Lewis & Bockius LLP, Washington, DC.

For Martin J. Stallone, Movant: Lathrop B. Nelson, III, PRO HAC VICE, Alfred J. Kuffler, Montgomery, McCracken, Walker & Rhoads, LLP (PA), Philadelphia, PA; Fred F. Fielding, PRO HAC VICE, Morgan, Lewis & Bockius LLP, Washington, DC; Richard L. Scheff, Montgomery, McCracken, Walker & Rhoads, Philadelphia, PA.

For Wilmer Cutler Pickering Hale and Dorr LLP, Movant: David Fox Olsky, Wilmer Cutler Pickering Hale & Dorr, L.L.P. (NY), Washington, DC, NW; Peter Gillies Neiman, Wilmer, Cutler, Hale & Dorr, L.L.P. (NYC), New York, NY.

For Peter Ghavami, also known as Peter Ghavamilahidji, also known as Sealed Defendant 1, Defendant: Erik March Zissu, James Alfred Mitchell, LEAD ATTORNEYS, Mary Margulis-Ohnuma, Stillman, Friedman & Shechtman, P.C., New York, NY; Gregory L. Poe, Poe & Burton PLLC, Washington, DC; Marc Lee Mukasey, Bracewell & Giuliani, LLP, New York, NY.

For Gary Heinz, Defendant: Marc Lee Mukasey, LEAD ATTORNEY, Jonathan Nassau Halpern, Philip Joseph Bezanson, Bracewell & Giuliani, LLP, New York, NY; Gregory L. Poe, Poe & Burton PLLC, Washington, DC.

For Michael Welty, Defendant: Gregory L. Poe, Jennifer Lee Meinig, PRO HAC VICE, Rachel S Li Wai Suen, LEAD ATTORNEYS, Poe & Burton PLLC, Washington, DC; Marc Lee Mukasey, Bracewell & Giuliani, LLP, New York, NY; Preston Burton, Poe & Burton PLLC, Washington, DC.

For Privilege Claimant 7, Interested Party: Kevin R. Sullivan, King & Spalding llp, washington, dc.

For USA, Plaintiff: Charles Vincent Reilly, U.S. Dept. of Justice, (NY, 26 Fed. Pl), NY, NY; Eric C. Hoffmann, Antitrust Division, Department of Justice, New York, NY; Jennifer Marie Dixton, U.S. Department of Justice Antitrust Division, Chicago, IL; John Van Lonkhuyzen, U.S. Dept. of Justice - Antitrust Division, New York, NY; Kalina M. Tulley, U.S. Dept of Justice, Antitrust Division, Chicago, IL; Michelle Ofner Rindone, Antitrust Division, U.S. Department of Justice, New York City, NY; Neville Hedley, U.S. Dept. of Justice, Antitrust Division, Chicago, IL.

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OPINION & ORDER

KIMBA M. WOOD, United States District Judge.

After a month-long trial, Defendants Peter Ghavami (" Ghavami" ), Gary Heinz (" Heinz" ), and Michael Welty (" Welty" ) (collectively, " Defendants" ) were convicted of conspiracies to defraud municipal bond issuers, the United States Department of Treasury, and the Internal Revenue Service, by manipulating the bidding process for municipal bond investment products and other municipal finance products, in violation of 18 U.S.C. § § 371 and 1349. Heinz and Ghavami were also convicted of substantive wire fraud, in violation of 18 U.S.C. § 1343.

Welty now moves for a new trial, pursuant to Federal Rule of Criminal Procedure 33 (" Rule 33" ); Ghavami and Heinz join Welty's motion for a new trial. In addition, Heinz and Welty move for release pending appeal, pursuant to 18 U.S.C. § 3143(b). For the following reasons, the Court DENIES both motions.

I. BACKGROUND

Defendants worked for UBS Financial Services, Inc. (" UBS" ) on its municipal bond reinvestment and derivatives desk, (Tr. 502-03), participating in a market in which financial institutions provide investment products to the issuers of municipal bonds. Municipal bonds are issued by government and quasi-governmental entities to raise money for operations or projects. The money raised is typically spent slowly over time; issuers therefore frequently invest bond proceeds in investment products. These products are often chosen through a competitive bidding process, run by a financial institution hired by the issuer to act as a " broker." The broker solicits bids from financial institutions for investment products that are customized to the issuer's needs. The investment product offering the highest rate of return generally wins the bidding, and the financial institution that submits the winning bid is chosen as the investment product " provider." UBS functioned as both a broker and a provider for municipal bond investment products during the relevant time period. (Tr. 517, 529-30, 3861); see generally United States v. Grimm, 738 F.3d 498, 499-500 (2d Cir. 2013) (discussing the investment of municipal bond proceeds); ( see, e.g., Tr. 499-590, 2703, 2913-14, 3858-61).

Typically, interest payments on municipal bonds are not subject to federal income tax. See I.R.C. § 103(a) (providing that, subject to certain exceptions, " gross income does not include interest on any State or local bond" ). As part of the process for maintaining a bond's tax-exempt status when its proceeds are put into an investment product, United States Treasury regulations require issuers to determine the investment product's fair market value, see Grimm, 738 F.3d at 500 (citing Treas. Reg. § 1.148-5(d)); under the regulations' " safe harbor" provision, an investment product's purchase price can be

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" treated as the fair market value of the investment," if certain requirements for a competitive bidding process are satisfied, Treas. Reg. § 1.148-5(d)(6)(iii). The regulations require, among other things, that at least three bids be received, that a potential provider " not consult with any other potential provider about its bid" or be " given the opportunity to review other bids (i.e., a last look) before providing a bid," that bids be " determined without regard to any other formal or informal agreement that the potential provider has with the issuer or any other person," and that bids not be submitted " solely as a courtesy to the issuer or any other person for purposes of satisfying" the three-bid requirement. Id. Brokers and bidders sign " certifications" to the issuer that typically contain representations mirroring the Treasury regulations' requirements, so that the issuer's legal counsel can verify the bond's tax-exempt status. See generally Grimm, 738 F.3d at 499-500 (discussing the Treasury regulations); ( see, e.g., Tr. 521-94, 1640-47, 1858, 2068, 2473, 2701-10, 2735-46, 2802-09, 2914-16, 3590-91, 3942-56).

The Government charged Defendants with conspiring to manipulate and rig bidding on certain investment products, and then falsely certifying that competitive bidding processes had occurred. The Superseding Indictment contained six counts.

Counts One and Two charged Defendants with conspiracy to commit wire fraud in connection with UBS's role as a potential provider. Count One alleged that Defendants, acting as potential providers, conspired with other potential providers--specifically, individuals at J.P. Morgan Chase (" JPMC" ) and Bank of America (" BOA" )--to reduce competition among the firms by exchanging bid information, such as discussing on which transactions to bid, and submitting intentionally losing bids on each others' behalf, in violation of 18 U.S.C. § 371. Count Two charged that Defendants, acting as potential providers, conspired with a broker--Chambers, Dunhill, Rubin & Co. (" CDR" )--to set up bids for UBS to win, in violation of 18 U.S.C. § 1349. Coconspirators at CDR allegedly provided Defendants with the opportunity to change bids after reviewing the bids of others, kept competitive bidders off bid lists, and ...


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