Ever since New Mexico governor Bill Richardson withdrew his nomination for Commerce Secretary citing an investigation into the company that obtained a contract to advise the state on bond deals, news reports have been making reference to a broader nationwide probe of alleged price-fixing and corruption in the municipal bond industry, which the New Mexico investigation grew out of.

Here at Muckraker, we've started looking into that larger ongoing story, and today the New York Times delivers a helpful takeout on the subject -- though many of the details still remain murky.

As the paper explains, federal and state investigators have over the last few years gathered evidence of what looks like a collusion scheme by financial firms that work with state and local governments on municipal bond deals worth around $400 billion each year.

Explains the paper:

E-mail messages, taped phone conversations and other court documents suggest that companies did not engage in open competition for this lucrative business, but secretly divided it among themselves, imposing layers of excess cost on local governments, violating the federal rules for tax-exempt bonds and making questionable payments and campaign contributions to local officials who could steer them business. In some cases, they created exotic financial structures that blew up.

And crucially, the paper makes clear that this isn't just an isolated case, but rather goes to the very heart of the municipal bond system.

People with knowledge of the evidence say investigators are not just looking at a few bad apples, but also at the way an entire market has operated for years.

A former IRS investigator estimated to the Times that as much as $4 billion has vanished into the system as a result of the schemes.

A source tells the paper about evidence that sheds light on one way in which the scam works. People from firms that have contracted with local governments to help them pick their bankers were taped telling the bankers: "We want you to bid on this deal, but you're not going to get it -- you're going to get the next one. We want you to submit a sloppy bid." Then, in some cases, banks would be paid in cities where they did not work, to reward them for throwing the other contract to a competitor.

Part of the problem appears to be the lack of regulation, especially of companies that have emerged in recent years to advise governments on complex derivatives deals like swaps and options.

The Times explains:

The packages are presented as money-savers to the municipalities, which may want to protect themselves against interest rate changes. But over the last year, as turmoil spread through the credit markets, some of the derivatives have blown up, leaving local governments stuck with unexpected costs.

CDR, the firm that's being investigated in New Mexico, leading to Richardson's withdrawal, is one such company that handles derivatives.

That firm and two that do similar work -- Investment Management Advisory Group, (known as "Image"), and Sound Capital Management -- had their offices raided by the FBI in 2006 as part of the investigation.

The former Treasurer of the city of Phladelphia is currently in jail for accepting illegal payments in exchange for giving city bond business and other contracts to selected companies. CDR and Image appeared frequently in the indictments, and CDR was found to have paid for the Treasurer's trip to the Super Bowl, but neither firm was formally charged.

Financial services companies including JP Morgan Chase, AIG, and Merrill Lynch have been subpoenaed as part of the investigation.

The exact mechanism or mechanisms by which these scams works remains a bit obscure, and may vary from case to case. But the broad picture is clear: financial firms, including some Wall Street powerhouses (at least until recently) are suspected of colluding to rip off state and local governments -- that is, taxpayers -- for billions.

We'll be staying on top of this...

Bloomberg advances the ball a bit on the progress of the federal investigation in New Mexico into CDR Financial Products, which derailed Bill Richardson's bid to be Commerce Secretary.

It sounds like the probe is focusing on Richardson's former top aide. Reports Bloomberg:

A witness who testified before a federal grand jury in Albuquerque last month said he was asked if David Contarino, the former chief of staff, ordered New Mexico Finance Authority officials to hire Beverly Hills, California-based CDR Financial Products Inc. Another person familiar with the investigation said Contarino, 47, is a subject of the inquiry and that prosecutors are looking at whether he solicited contributions from firms that worked on finance authority bond deals.

Contarino, who managed Richardson's presidential run last year, released the following statement:

As chief of staff and co-chairman of the Governor's Finance Council, it was my job to be involved in GRIP and many of the administration's economic and financial initiatives," Contarino said in an e-mail statement. "In all of my actions, I acted appropriately and I am confident that the investigation will bear out that fact.

Bloomberg also raises preliminary questions about another Richardson aide:

Michael Stratton, a senior political adviser to Richardson, lobbied the authority on CDR's behalf, [Finance Authority CEO Bill] Sisneros said.

Stratton was also paid $269,000 by JPMorgan Chase & Co. in 2003 and 2004 to help win public finance business in New Mexico, according to Municipal Securities Rulemaking Board records. JPMorgan served as lead underwriter on about $1 billion of transportation bond deals for Richardson's transportation program.

And Bloomberg adds additional detail about how CDR got one of the contracts under issue in the first place. In a nutshell, after CDR's 2003 bid received the second top score, the then-chief financial officer of the finance agency recommended splitting the job between the top two candidates.

Six companies answered the request, which contained two questions out of 39 items related to experience with interest- rate swaps and guaranteed investment contracts. A joint venture of the New York companies Salomon Smith Barney Inc., a unit of Citigroup Inc., and Ryan Labs Inc. received the top score of 99 percent. CDR had the second-highest score of 97 percent, authority records show.

Rather than select the Smith Barney/Ryan Labs team as both investment and swap adviser, the authority's then-Chief Financial Officer, Keith Mellor, recommended splitting the job. The agency gave the swap adviser assignment to CDR, which received the same score as the Smith Barney/Ryan Labs team on the swap section of the proposals, authority records show.

Brian Hudson, the executive director of the Pennsylvania Housing Finance Agency was not contacted by anyone in the office of governor Ed Rendell in regard to the 2003 no-bid contract awarded by the agency to CDR Financial Products, Hudson told TPMmuckraker moments ago.

Hudson said that at that time, only two firms had the technical expertise to do the bond-swap advisory work the agency sought, and that CDR Financial was selected over a rival, Swap Advisors, simply because its appeared to "bring more to the table."

Hudson added he had been pleased with the company's work, saying that CDR had saved the PHFA $2-3 million, and that the agency had renewed its contract with the firm each year, and continues to employ it.

But he allowed that he was troubled by the allegations against CDR, and would reconsider the agency's ongoing relationship with the firm when its contract came up for renewal in March.

Hudson added that he had never heard of Alan Kessler, the Rendell fundraiser who records show, has lobbied for CDR.

As we noted earlier, Pennsylvania governor Ed Rendell has received at least $35,000 in contributions from CDR founder David Rubin. New Mexico governor Bill Richardson, who also received money from Rubin, this weekend withdrew his nomination to be Commerce Secretary citing a federal probe into the company's contracts with his state.

Earlier today we noted Pennsylvania governor Ed Rendell's ties to CDR Financial Products, the firm that derailed Bill Richardson's bid to be Commerce Secretary. Now we've found another Rendell-CDR link.

State lobbying disclosure records from 2006 show that CDR was represented by Alan Kessler of the Philadelphia law firm Wolf, Block, Schorr and Solis-Cohen. Kessler is also the chair of the USPS board of governors.

Philadelphia magazine describes Kessler as a "big fundraiser" for Rendell. And his Wolf Block bio shows he's held a string of prime patronage posts in government and Democratic politics.

From the bio:

Kessler was appointed by Governor Rendell as Finance Chair of the Pennsylvania Democratic Party.

Kessler also served, according to the site, as co-chair of Rendell's two transitions, the first after Rendell was elected mayor of Philadelphia in 1992, and the second after he was elected Pennsylvania governor in 2002.

And Kessler is said to have served as finance vice chair of the Democratic National Committee (DNC), which Rendell chaired from 1999 to 2001.

Kessler did not immediately respond to a phone call and email from TPMmuckraker requesting comment.

As we noted earlier, CDR obtained a no-bid financial contract from a state agency, the Pennsylvania Housing Finance Agency (PHFA), in 2003. And its founder David Rubin has contributed $35,000 to Rendell.

Chuck Ardo, a spokesman for Rendell told TPMmuckraker: "The governor took no action on behalf of CDR."

Ardo added that the 2003 contract was given by PHFA, and that the governor had no role in selecting CDR -- the same thing he told the Pittsburgh Tribune-Review which first reported the existence of the contract this morning.

Brian Hudson, the PHFA's executive director, told the Tribune-Review that he made the decision to select CDR, and that he wasn't contacted by anyone from the governor's office.

Hudson did not immediately respond to a phone call from TPMmuckraker.

Since Bill Richardson withdrew as Commerce Secretary nominee, citing the investigation into CDR Financial Products, there's been speculation (I know, I know, it's the Spectator) that he might not be the only prominent elected official who received political contributions from the company, and also contracted with it for government business.

And it looks like he isn't.

Recent reports have noted that Pennsylvania governor Ed Rendell received significant contributions from CDR founder David Rubin -- whose company's various run-ins with the law are beginning to attract scrutiny.

Today the Pittsburgh Tribune Review puts those contributions at $35,000. But it also reveals that CDR does indeed have a contract - a no-bid contract, to be precise -- with a state agency, which appears to be similar to the one it has with a New Mexico government agency.

The paper reports:

Gov. Ed Rendell was not aware that the Pennsylvania Housing Finance Agency awarded a $160,000 no-bid contract in 2003 to a California company headed by a member of his transition team for the state Department of Revenue, his spokesman said today.

Since then, CDR Financial Products has collected an estimated $770,000 as financial advisor to the housing agency, said Brian Hudson, the agency's executive director. Its contract is for $45,000, Hudson said.

A story (via nexis) that appeared in The Bond Buyer, a trade publication, in May of 2006 sheds a bit more light on that contract. The story reports that:

The Pennsylvania Housing Finance Agency [will issue] $150 million in single-family mortgage debt starting Wednesday to help fund home loans for residents with low to moderate incomes.

...

CDR Financial Products is the agency's swap adviser.

An earlier statement given to the paper by Rendell's office also described the governor's relationship with Rubin as "tangential". But it did not mention that, as the Tribune-Review noted, Rubin served on Rendell's 2003 transition team when Rendell was preparing to become governor. Rubin is still touting the appointment on his company's website.

As we noted yesteday, CDR was also found to have paid for the then-Treasurer of the city of Philadelphia, Corey Kemp, to attend the 2003 Super Bowl. Kemp is currently serving a jail sentence on a corruption conviction, though CDR was not charged with wrong-doing.

CDR won its contract with the city without a competitive bidding process.

Rendell was mayor of Philadelphia until 2000, though no evidence has yet emerged that the city's contract with CDR dates to his tenure as mayor.

Late update: Hudson tells TPMmuckraker he wasn't contacted by the governor's office in regard to CDR.

Buried in a Washington Post story on the incipient infighting between the Obama and Richardson camps about who's to blame for the aborted Commerce Secretary nomination, there's an interesting advance on the deeper story itself.

The Post reports:

The seriousness of the matter became apparent after the FBI began its own background check on Dec. 2.

And a little further down:

FBI agents assigned to comb his background learned independently that an inquiry was underway in New Mexico, the [Justice Department] source said.

In other words, it looks like FBI agents conducting a background check on Richardson for the Commerce job started bumping into their colleagues, who were looking into how CDR, a financial products company with a sketchy past that's donated over $100,000 to Richardson, obtained lucrative contracts advising the state finance authority on bond issues.

That suggests -- though of course, doesn't prove -- that the federal probe of CDR could be looking more directly at the governor himself.

And in that same vein, it was reported yesterday that Richardson had hired a top Albuquerque white-collar lawyer, Peter Schoenburg, in connection with the investigation.

More to come...

It's too soon to say where the federal investigation into CDR Financial Products -- which led to Bill Richardson's withdrawal this weekend as Barack Obama's nominee for Commerce Secretary -- might be heading.

The probe is focused on how the company -- whose founder gave at least $100,000 in political contributions to the New Mexico governor's political action committees -- won two 2004 financial consulting contracts with the state, worth about $1.4 million. No real evidence has yet emerged that Richardson himself is currently a target of the investigation, but his abrupt decision to take himself out of the running for the Commerce post -- and his refusal to say, at a press conference this afternoon, whether he had hired a lawyer in connection with the investigation -- suggest the story won't soon go away.

So it's worth noting that CDR and its founder David Rubin don't exactly have a squeaky clean record.

Even the firm's name isn't what it seems. A 2006 Bloomberg report notes:

David Rubin, whose firm, CDR Financial Products, is entangled in investigations by the Internal Revenue Service, used to call his company Chambers, Dunhill, Rubin & Co. He says he picked those names because he liked the sound of them together. Chambers and Dunhill didn't exist.

More seriously, that same story reported:

CDR, which has advised local governments on more than $17 billion of derivatives since 2003, is being investigated by the IRS for possibly profiting from deals at the expense of U.S. taxpayers. According to IRS letters obtained from the cities of Atlanta and Fargo, North Dakota, and an internal memo from the state of Wisconsin, CDR may have colluded with Bank of America Corp., Bear Stearns Cos. and other companies to make improper fees by selling municipalities unneeded contracts or mispricing investment deals.

The company's offices were searched as part of that investigation, which is ongoing, Bloomberg reports today. The probe is looking at whether banks and advisers conspired to overcharge local governments on financing deals.

The firm was also a player in a federal corruption probe focused on the administration of then-Philadelphia mayor John Street.

Bloomberg provides the details:

In April 2001, CDR hired Ron White, a bond lawyer and chief fundraiser for Philadelphia Mayor John Street, as a consultant, paying him a $5,000 retainer to help the company win business with the city. Rubin donated $15,000 to Street between December 2000 and June 2003, according to Pennsylvania state filings.

In addition, CDR gave White three tickets to the 2003 Super Bowl in San Diego and provided a limo ride to the game. White brought along Philadelphia treasurer Corey Kemp, according to a federal criminal indictment brought against White and Kemp in 2004.

On Feb. 11, 16 days after the game, Kemp told White that city Finance Director Janice Davis agreed to "move fast forward" on a $150,000 swap advisory contract for CDR, according to transcripts of FBI wiretaps.

Banks paid CDR, which wasn't accused of wrongdoing, at least $515,000 from profits they earned on transactions with the city, documents show.

CDR won its contract with the city without a competitive bidding process.

None of this, of course, means that either CDR or Richardson are guilty of any wrong-doing here. But at a minimum, we don't figure to have heard the last of this...