Bid-Rigging Convictions Upset on Statute of Limitations

, New York Law Journal

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The conviction of three former General Electric Co. employees for conspiring with brokers to fix below-market rates on the interest that GE pays to cities on municipal bonds have been thrown out by a federal appeals court.

A 2-1 panel of the U.S. Court of Appeals for the Second Circuit said Monday that the statute of limitations had run out on the government in its prosecution of Peter Grimm, Dominick Carollo and Steven Goldberg for rigging the market on interest rates.

Judges Dennis Jacobs (See Profile) and Chester Straub (See Profile) held in United States v. Grimm, 12-4310-cr, that artificially depressed interest payments are not "overt acts" that extend the five-year limitations period in which prosecutors must bring an indictment.

Judge Amalya Kearse (See Profile) dissented, arguing that U.S. District Judge Harold Baer (See Profile) of the Southern District of New York was correct to hold the limitations period had not run.

Grimm, Carollo and Goldberg all worked in 1999 in a GE unit that served as a provider of guaranteed investment contracts (GICs), which earn money for cities on the proceeds of municipal bonds until projects are completed. Goldberg moved to another provider, Financial Security Assurance Inc., in 2001.

The indictment handed down in 2010 against the three alleged they rigged the bidding process between August 1999 and May 2004 by agreeing to pay kickbacks to three brokers.

Baer in 2011 rejected their arguments that the conspiracy charges were barred by the five-year statute of limitations and the three were convicted by a jury on five conspiracy counts following a three-week trial. Goldberg was sentenced to four years in prison; Carollo and Grimm received three years each.

But one week after hearing oral arguments on Nov. 19, 2013, the Second Circuit issued an order on Nov. 26 vacating the convictions. Grimm, Carollo and Goldberg were released from prison the following day.

In the circuit's decision explaining its ruling, Jacobs said that the indictment alleged 55 overt acts in support of the conspiracy, but "the only ones that involved conduct after July 27, 2004, were the periodic interest payments made by providers to issuers pursuant to the GICs."

The defendants argued that routine interest payments cannot suffice as overt acts.

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