Nov 27

Convictions of 3 Ex-GE Muni-Bond Execs Reversed by Second Circuit on Summary Order Just Days After Oral Argument

Yesterday, just a week after oral argument, the United States Court of Appeals for the Second Circuit issued a summary order (with an opinion to follow) reversing the convictions of three former General Electric Co. (“GE”) finance executives – Steven Goldberg, Peter Grimm, and Dominick Carollo – who were found guilty of conspiring to commit municipal bond-related bid rigging in May 2012 after a lengthy jury trial in the United States District Court for the Southern District of New York.

Though the court did not explain the basis for its swift and decisive action, the primary argument raised by the defendants – and the court’s main focus at oral argument last week – related to whether ongoing interest payments constitute overt acts in furtherance of a conspiracy, thereby tolling the statute of limitations.

In its July 2010 indictment, the Antitrust Division of the U.S. Department of Justice alleged, inter alia, that Goldberg, Grimm, and Carollo conspired with other providers of investment agreements and municipal finance contracts, as well as with brokers retained by municipalities issuing bonds, to defraud municipalities in violation of 18 U.S.C. § 371. More specifically, the defendants allegedly discussed with other providers the specific interest rates that would be bid and/or paid kickbacks to brokers in exchange for information and/or last looks, all allowing them to ensure contracts went to GE and to “lowball” their bids. Richard Vanderford, “3 Ex-GE Execs Found Guilty of Muni Bond Bid-Rigging,” Law-360 (May 11, 2012).

In their motions to dismiss the indictment and in their appellate briefs, counsel for Goldberg, Grimm, and Carollo argued that the government’s case was barred by the five-year statute of limitations applicable to a Section 371 conspiracy, which begins to run as of the last overt act in furtherance of the conspiracy. See Grunewald v. United States, 353 U.S. 391, 396-97 (1957). Here, the alleged bid rigging activities all occurred in connection with contracts that closed between August 1999 and May 2004. As the defendants and their co-conspirators took no further action following the closings, the defendants argued that the July 2010 indictment was untimely.

The government argued, however, that because GE was still making fraudulently-reduced interest payments to the municipalities in connection with the contracts, the statute of limitations had not tolled. More specifically, because the purpose of the conspiracy was economic enrichment, the conspiracy did not end at the contracts’ award, but continued as interest payments were made pursuant to the contracts because those interest payments, which realize the anticipated economic enrichment, are “in furtherance of” the conspiracy. See United States v. Salmonese, 352 F.3d 608, 615 (2d Cir. 2003); United States v. N. Improvement Co., 814 F.2d 540, 542 (8th Cir. 1987)United States v. Girard, 744 F.2d 1170, 1172-73 (5th Cir. 1984); United States v. Walker, 653 F.2d 1343-48 (9th Cir. 1981).

Defense counsel countered this proposition, arguing that pre-determined interest payments do not qualify as overt acts because: (1) they are merely the “result” of a completed conspiracy, not an act “in furtherance of” a conspiracy, Fiswick v. United States, 329 U.S. 211, 216 (1946); and (2) they are acts of an innocent third party (GE), not acts knowingly made by a conspirator (i.e., the defendants, other providers, and brokers), Salmonese, 352 F.3d at 617 n.3. Furthermore, defense counsel argued that finding that the conspiracy continues with each of GE’s interest payments would undermine the purpose of the statute of limitations, allowing it to run so long as the interest payments continue to be made under these long-term contracts.

According to one article, this latter argument seemed to resonate with the panel during oral argument. Judge Dennis Jacobs even noted that “if payments are made automatically under a 99-year-contract obtained through a conspiracy, the statute of limitations would also be extended by a century under the government’s theory – ‘more than a human lifetime in some hypotheticals.'”  Richard Vanderford, “Ex-GE Execs Tell 2nd Circ. Bid-Rigging Charges Were Late,” Law-360 (Nov. 19, 2013).

The possibility that the court’s reversal was based on these statute of limitations arguments has white collar practitioners awaiting the Second Circuit’s opinion with great anticipation. A broad holding regarding the statute of limitations for conspiracies aimed at economic enrichment could have major implications in the field.

In the meantime, Goldberg, Grimm and Carollo – whom the district court ordered to be released from the custody of the Bureau of Prisons – should have a very happy Thanksgiving and holiday season.

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