Outfit Found Liable In Illinois Civil Case Involving Tax Lien Auctions Now Under Scrutiny By Feds In Alleged NJ 'Round-Robin' Bid Rigging Racket

Bloomberg reports:

• M.D. Sass Investors Services Inc., a closely held manager of more than $5 billion, participated in an auction of New Jersey tax liens that has come under the scrutiny of U.S. antitrust investigators probing rigged sales.



• A representative of M.D. Sass, whose tax-lien funds have as much as $110 million in assets, was among seven bidders vying for liens in the New Jersey borough of Newfield, according to records of a March 5, 2007, auction. Three people associated with the seven bidders pleaded guilty to antitrust charges and are cooperating with prosecutors.(1) The Justice Department subpoenaed records of the auction on Feb. 15. M.D. Sass hasn’t been accused of wrongdoing.



• The U.S. records request comes amid a widening probe into rigged liens sales in New Jersey. Since August, five men have pleaded guilty to conspiracy charges. The guilty pleas were to an overall conspiracy and not to the particular auction in Newfield, 35 miles south of Philadelphia.



• Units of Royal Bank America, which operates branches in Pennsylvania and New Jersey, co-owned lien-buying firms with one of the men admitting guilt. The units are subjects of the probe, regulatory filings show. Royal Bank America is a unit of Royal Bancshares of Pennsylvania Inc.



• Justice Department prosecutors want “all tax sale bidder information,” according to a copy of the subpoena disclosed by Newfield in response to a request under the state’s public records law. That includes “the name and address of each person who attended the relevant tax lien sale,” according to the subpoena.



• “M.D. Sass companies have no comment on any activity or investigation that may be under way at the Department of Justice,” Mark Rotert, a lawyer for the New York-based firm, said in an e-mail.



• Separately, M.D. Sass was found liable last year in a Chicago trial over civil racketeering claims involving tax liens.

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• New Jersey municipalities seeking revenue sell about $100 million a year in local tax debt on commercial and residential property to investors, said Vincent Belluscio, executive director of the Tax Collectors and Treasurers Association of New Jersey. Firms that buy liens at auctions pay the tax liability in full and then seek to collect from the property owner. They may earn as much as 30 percent on their investment, Belluscio said in a phone interview. In addition to interest of as much as 18 percent on delinquent taxes, the firms may add penalties of as much as 12 percent, he said.



• Bidders on the liens are supposed to compete fairly for the right to buy them and collect taxes on property. Buyers, who seek the return of their principal investment and interest, begin bidding at 18 percent interest and then lower that rate with each bid.



• Each of the 59 liens sold in the Newfield auction went for 18 percent, according to borough records. That suggests the seven participants didn’t bid against one another, Belluscio said in a phone interview.



• “It makes it a little suspicious,” he said. “It’s very strange if you have that many lines up for sale, and they’re all going up for 18 percent.”



• M.D. Sass bought four liens, including the two largest. Other firms purchased as many as 11, according to records. Daniel Lebar, a lawyer and tax lien investor who bought three, said participants at the auction chose not to compete because there were many liens available for the few bidders who showed up.



• “The sense was the list is long, we all know each other, there is no need to kill each other, so we’ll just bid round- robin,” Lebar said in a phone interview. “It was really just spur-of-the-moment,” he said. “There was no conspiracy.”



• Lebar said lien buyers sometimes followed that practice at other New Jersey auctions including some in Camden County. “It’s a niche business,” said Lebar, 55, who followed his father into the business. “We have camaraderie among each other. If we get a sense that there’s enough for everybody, we’ll bid round-robin.”



• Harry First, who teaches antitrust law at New York University School of Law, said such spur-of-the-moment decisions may violate antitrust law. “If you agree beforehand, there’s no requirement how beforehand it has to be,” First said in a phone interview. “If people show up and agree to allocate the bids, and there’s no bidding, they’ve done it.”



• The Newfield auction attracted individuals or firms associated with individuals who pleaded guilty to an antitrust conspiracy charge in federal court in Newark, New Jersey. The three pleading guilty were Robert Stein, David Farber and William Collins. Stein’s lawyer, Paul Zoubek, and Farber’s attorney, Michael Mustokoff, didn’t return calls. Collins’ lawyer, Jack Wenik, declined to comment.

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• M.D. Sass has been buying tax liens since 1993, according to testimony in October at the unrelated civil racketeering trial in federal court in Chicago. The firm has invested hundreds of millions of dollars buying liens in states including New Jersey, Kentucky and Massachusetts, Kirk Allison, a vice president at M.D. Sass Investors Services, testified at the trial.

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• A federal court jury found in favor of two lien-buying firms that claimed that M.D. Sass and other companies secretly worked together to buy and trade liens, according to court records. The damages awarded will exceed $10 million, said Jonathan Quinn, a lawyer at Reed Smith who represented the plaintiffs.



• Rotert, the lawyer for M.D. Sass at the trial, said the firm plans to appeal. “We believe the verdicts are incorrect as to the facts and we think certain errors of law took place before and during the trial,” Rotert said.



• The Chicago case is Phoenix Bond & Indemnity Co. v. Bridge, 05-cv-04095, U.S. District Court, Northern District of Illinois (Chicago).

For more, see New Jersey ‘Round Robin’ Tax Lien Auction Spurs Probe.

(1) Another example of squealing schemers abandoning a 'sinking conspiratorial ship', winning the race to the prosecutor's office and seeking to take down fellow co-conspirators by 'throwing them under the bus' to score a better break on a plea deal. Vrooooom!!! As noted by one learned Federal judge:

• "When a conspiracy is exposed by an arrest or execution of search warrants, soon-to-be defendants know that the first one to "belly up" and tell what he knows receives the best deal. The pressure is to bargain and bargain early, even if an indictment has not been filed." United States v. Moody, 206 F.3d 609, 617 (6th Cir. 2000) (Wiseman, J., concurring) (referring to the not-uncommon 'race to the prosecutor's office' that breaks out among participants in an 'about-to-fall-apart' criminal conspiracy).