WASHINGTON — A politically connected Beverly Hills, Calif., firm — which was part of a federal investigation that cost New Mexico Gov. Bill Richardson a Cabinet seat — was indicted Thursday for what prosecutors say was a bid-rigging scheme in the municipal bond business.

The charges in the nine-count indictment filed Thursday in Manhattan federal court against CDR Financial Products Inc. are the first resulting from the Justice Department's probe of the mammoth municipal bonds industry. CDR, based in Beverly Hills, Calif., has also come under scrutiny for its ties to Richardson.

The indictment alleges that two CDR executives and one former executive from the firm engaged in bid-rigging conspiracies in which CDR was hired by public entities that issue municipal bonds to act as their broker and conduct a supposedly competitive bidding process.

"This case is fundamentally about collusion, the illegal rigging of a purportedly competitive bidding process," said Joseph Demarest, head of the FBI's New York office.

The result of the scam, Demarest said, was less money for the states, cities and counties that hired CDR.

CDR is also known as Rubin/Chambers, Dunhill Insurance Services Inc.

Prosecutors say CDR's company's owner and president, David Rubin, vice president Evan Zarefksy and former chief financial officer Zevi Wolmark took part in two wire fraud schemes. The three are also charged with obstructing the IRS.

Because such bonds are tax-exempt, the competitive bidding process is regulated by the IRS.

Prosecutors said the company secretly manipulated the bidding process to enrich themselves and the bidding companies at the expense of the municipalities, the IRS or both.

Under the scheme, CDR would arrange in advance which company would win a particular bid for bond business and arrange kickbacks to CDR in the form of inflated fees, authorities said.

In one 2006 state bond deal, one of the bidders agreed to pay CDR a $475,000 kickback, according to the indictment.

The municipal bond business is huge: In 2007 and 2008, about $800 billion worth of municipal bonds were issued across the country.

If convicted of the most serious charge against them, the three men face a maximum prison sentence of 20 years.

Rubin's lawyer Donald Etra said the charges "have no basis."

"The bottom line is that David Rubin has done nothing wrong," Etra said. "He's a brilliant businessman and a prominent philanthropist."

Lawyers for the other two men could not immediately be located.

The company could face a maximum fine of $100 million for the bid-rigging charge.

Federal prosecutors in New Mexico had also investigated CDR for its links to Richardson, the Democratic governor. The investigation forced Richardson to bow out of a possible Cabinet position in the Obama White House.

Rubin and his firm contributed $110,000 to Richardson political committees from 2003 to 2005. The largest of those contributions, $75,000, was made less than a week before CDR was selected in June 2004 by the New Mexico Finance Authority to handle the reinvestment of idle bond proceeds.

CDR was hired as a financial adviser on state transportation bond deals, which generated almost $1.5 million in fees for CDR in 2004-2005.

Thursday's indictment does not mention Richardson, but it does refer to a May 20, 2004, call allegedly placed between people in New Mexico and New York in which a bid was rigged. Two months later, a New York state housing agency began receiving interest payments at what investigators say was an artificially reduced rate.

Richardson's deputy chief of staff, Gilbert Gallegos, said the investigation in New Mexico concluded without indictments.




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