U.S. v. Ferber, Crim. No. 95-10338-WGY.

CourtUnited States District Courts. 1st Circuit. United States District Courts. 1st Circuit. District of Massachusetts
Writing for the CourtYoung
Citation966 F.Supp. 90
PartiesUNITED STATES of America, v. Mark S. FERBER, Defendant.
Docket NumberCrim. No. 95-10338-WGY.
Decision Date14 March 1997
966 F.Supp. 90
Mark S. FERBER, Defendant.
Crim. No. 95-10338-WGY.
United States District Court, D. Massachusetts.
March 14, 1997.

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Kathy B. Weinman, Dwyer, Collora & Gertner, Thomas E. Dwyer, Jr., Maria R. Durant, Dwyer & Collora, Boston, MA, for Defendant.

Janice W. Howe, Bingham, Dana & Gould, Boston, MA, for Massachusetts Water Resources Authority.

John E. Wall, Wall & Shaughnessy, Boston, MA, for Merrill Lynch Pierce Fenner & Smith, Inc.

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John G. Fabiano, Hale & Dorr, Boston, MA, for Lazard Freres & Co.

David J. Apfel, Brien T. O'Connor, U.S. Attorney's Office, Boston, MA, for U.S.


YOUNG, District Judge.


On May 2, 1996, a federal grand jury sitting in this district returned a Second Superseding Indictment (the "Superseding Indictment"), charging Mark S. Ferber ("Ferber") with 39 counts of mail and wire fraud in violation of 18 U.S.C. §§ 1341, 1343, and 1346 (Counts 1-39), 13 counts of accepting bribes and unlawful gratuities as an agent of an organization receiving federal funds in violation of 18 U.S.C. § 666(a)(1)(B) (Counts 40-52, "the Bribery Counts"), one count of conspiracy in violation of 18 U.S.C. § 371 (Count 53), 25 counts of using interstate travel to commit bribery, commercial bribery, and extortion in violation of 18 U.S.C. § 1952 (Counts 54-78, "the Travel Act Counts"), and one count of attempted extortion in violation of 18 U.S.C. § 1951 (Count 79).

The government dismissed the conspiracy and attempted extortion counts on the eve of trial but went on to prove the facts summarized below:

Ferber was employed as a financial advisor and investment banker working principally in the area of public finance. During the period covered by the Superseding Indictment, he was employed by four investment banking firms: Kidder, Peabody ("Kidder"), from January 1982 to June 1986; First Boston Corporation, from June 1986 to April 1988; Lazard Freres & Co. ("Lazard"), from April 1988 to February 1993; and First Albany Corporation, from February 1993 to July 1993. At various times from March 1985 to July 1993, Ferber and the firms for which he worked were retained to serve as financial advisors to several government and public agencies, including the Massachusetts Water Resources Authority ("MWRA"), the District of Columbia, the Michigan Department of Transportation ("MDOT"), and the United States Postal Service ("USPS") (collectively the "Public Entity Clients"). In each case, the Public Entity Clients relied primarily on Ferber for financial advice. This role created a fiduciary relationship between Ferber and his Public Entity Clients in that they placed a special trust and confidence in him based upon his knowledge and expertise and expected him to act in their best interests.

Ferber, however, strayed from this obligation of utmost loyalty and fidelity. Ferber was charged, and ultimately convicted, of taking advantage of his special position with the Public Entity Clients for his own personal gain, thereby breaching his fiduciary duty and defrauding those clients.

A. The Scheme to Defraud the MWRA

The MWRA is an authority of the Commonwealth of Massachusetts responsible for providing water and sewer services for approximately 45 Massachusetts cities and towns and, as a result of that responsibility, is also principally responsible for the cleanup of the Boston Harbor. To accomplish these objectives, the MWRA found it necessary to raise billions of dollars, principally by issuing bonds.

In March, 1985, the MWRA retained Kidder as its first financial advisor to assist in executing the financial transactions necessary for its activities. Throughout the MWRA's relationship with Kidder, Ferber was the individual responsible for performing and supervising the advisory services which the MWRA received from Kidder. From March, 1985 to January, 1993, as Ferber moved from one investment banking firm to another, the MWRA formally contracted with those firms and continued to rely on Ferber for financial advisory services. Evidence presented at trial tended to prove that this continuing relationship imposed a fiduciary duty upon Ferber. At trial, the government proved that Ferber secretly violated his duty to the MWRA by putting his own interests above the MWRA's interests, thereby defrauding the MWRA.

The scheme to defraud the MWRA was executed as follows. The MWRA would, from time to time, need to raise capital and would often do so by issuing debt in the form

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of bonds to the public. To execute these bond issues efficiently and effectively, the MWRA looked to investment banking firms to act as underwriters and would conduct a selection process by means of an open bid process.

The selection process involved the issuance of a request for qualifications ("RFQ") that consisted of a series of questions bearing on the investment bank's qualifications to serve as an underwriter. The RFQs also contained a provision — called the "blackout rule" — prohibiting participating investment banks from contacting any employee, member, or agent of the MWRA other than its Chief Financial Officer concerning the subject matter of the RFQ. See, e.g., MWRA Request for Qualifications To Participate in Underwriting for the Massachusetts Water Resources Authority, Jan. 5, 1991, Trial Ex. 693, at 14. The investment banks would prepare written responses to the RFQs, hoping to tout their experience and skills in underwriting, thereby retaining a prominent role in the underwriting process.1 After receiving the written responses to the RFQ, the MWRA selected those investment banks with the best written responses for participation in an oral presentation as part of the final selection process.

Ferber, as financial advisor, played a key role in both drafting the RFQs and preparing the MWRA's selection committee for the oral presentations. The jury found that Ferber exploited his central role in this process on more than one occasion by giving unfair advantage to the investment banking firm of Merrill Lynch, Pierce, Fenner & Smith, Inc. ("Merrill Lynch") in the selection process. Ferber did this, the government argued and the jury so found, in exchange for certain financial and business advantage he gained or hoped to gain from Merrill Lynch.

Specifically, the government showed that soon after Ferber became financial advisor to the MWRA, he told employees of Wall Street firms that if they wanted to get business with the MWRA, they would have to do favors for him. This conduct escalated when the MWRA decided to issue bonds to pay for various public works projects in 1989. At that time, Ferber met with representatives of Merrill Lynch. Merrill Lynch was very interested in serving as an underwriter for the MWRA bond issue. During the initial meeting, Ferber "requested that Merrill Lynch do him a `favor' by giving ... Lazard, bonds with defendant Ferber's `name on them.'" Superseding Indictment ("Sup.Ind.") ¶ 21. In addition, Ferber told Merrill Lynch's representatives that they should have Merrill Lynch clients run debt issues through a finance agency which paid Ferber's firm, Lazard, half of all its underwriting compensation.

The government alleged, and the jury ultimately agreed, that Ferber aided Merrill Lynch during the 1989 underwriter selection process for the MWRA debt issue by providing information to Merrill Lynch in violation of the so called "blackout rule."2 In March, 1989, the MWRA selected Merrill Lynch as a senior managing underwriter for the bond issue.

In September, 1989, Ferber contacted Merrill Lynch and complained about the lack of business they had sent him after he had put such a "positive spin" on their performance before the MWRA. Two weeks later, a Merrill Lynch representative came to Ferber and explained interest rate swaps in an attempt to persuade Ferber to get the MWRA to conduct swap transactions.3 Ferber expressed an immediate interest in interest rate swaps and suggested that he could assist

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Merrill Lynch in explaining the transaction to others.

In November, 1989, Merrill Lynch completed an interest rate swap with a development district in Florida. In February, 1990, Merrill Lynch sent Ferber a check for $90,000. Ferber informed Lazard that the money was for work performed on the interest rate swap in Florida. In reality, however, neither Ferber nor any one else at Lazard had done any work whatsoever on that transaction.

In 1990, Ferber recommended that the MWRA participate in interest rate swaps with Merrill Lynch. The MWRA engaged in two interest rate swap transactions which resulted in a fee of over $1.6 million to Merrill Lynch.

On June 26, 1990, Merrill Lynch and Lazard, acting through Ferber, entered into a written contract (the "interest rate swap contract") which called for Lazard's participation in interest rate swaps in return for Merrill Lynch paying Lazard a flat rate of $800,000 for the period of June 26, 1990 to December 31, 1990, in addition to a portion of the compensation earned from the execution of the swaps. The interest rate swap contract was extended for one calendar year on December 1, 1990 and provided for $1,000,000 in periodic payments.4 While the extended December 1, 1990 contract was in place, Merrill Lynch attempted to terminate the periodic payment under the contract. Ferber, however, told a Merrill Lynch representative that he would "hurt" Merrill Lynch unless the periodic payment was not only renewed, but also increased by $500,000.

In 1992, the MWRA undertook another major bond issue. Once again, Ferber violated the "blackout rule" and provided Merrill Lynch with critical information to aid it in its oral presentation. The MWRA ultimately picked Merrill Lynch as the major underwriter on the issue.

While Ferber was dealing with both the MWRA and Merrill Lynch, he never disclosed his conflict of interest to the MWRA. Indeed, during the negotiation of the interest...

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