Ex-Bank of America Exec Pleads Guilty to Bid-Rigging Municipal Bonds


Phillip Murphy, a former managing director at Bank of America, pleaded guilty on Monday for his role in a wide-ranging bid-rigging scheme that set artificial prices for municipal bond investment contracts.

Murphy, along with the 17 other defendants to plead guilty or get convicted, defrauded cities and counties who believed they were making investment agreements with the bank that offered them the best deal. Instead, the contracts went to predetermined winners, who sent kickbacks to the broker company, CDR Financial Products, charged with running the bidding process.

“Mr. Murphy ripped off hard working American taxpayers and cash-strapped municipalities all in pursuit of his own lucre,” George Venizelos, who heads the FBI’s New York Field Office, said in a statement.

Cities, counties, and other public entities use these investments to raise money for various projects, like schools or parks or roads. Much of the invested money comes from municipal bonds issued to the public.

These entities often hire a financial broker to help them find the best place to put the money. The broker holds a competitive bidding process and awards the investment contract to the bank offering the best rate.

In this scheme, however, CDR selected the winners before the bidding process. CRD told Murphy and other bankers involved when to submit an intentionally losing bid and when to submit a bid that was sure to win.

“As a result of the information, various providers won investment agreements and other municipal finance contracts at artificially determined prices,” the FBI’s New York Field Office explained in a statement. “In exchange for this information, Murphy submitted intentionally losing bids for certain investment agreements and other contracts when requested and, on occasion, agreed to pay or arranged for kickbacks to be paid to CDR and other co-conspirator brokers.”

Murphy served as managing director of Bank of America’s municipal derivatives products desk from 1998 to 2002.

The indictment noted that Murphy paid CDR $70,000 in January 2002 following an October 2001 contract for a bio-medical research center in San Francisco. The kickback was hidden as an unrelated transaction fee.

CDR’s bid-rigging went on from 1998 to 2006. So far, officials from Bank of America, JPMorgan Chase and UBS have pleaded guilty. Those three institutions, as well as Wells Fargo and General Electric, have paid a total of $743 million in restitution and penalties.

Murphy, who stood before a federal judge in North Carolina, pleaded guilty to two counts of conspiracy and one count of wire fraud. The wire fraud conviction carries a maximum prison sentence of 30 years.

James Hertz, a former Chase vice-president, pleaded guilty to wire fraud and conspiracy charges in 2010 but received no prison time because he cooperated with prosecutors, testifying at the trial of three former UBS bankers. Each of those bankers was sentenced to at least a year in prison.

CDR’s founder, David Rubin, has also pleaded guilty. He is scheduled for sentencing in Manhattan federal court on March 6.