Ex-Lazard Partner Guilty of Muni Bond Fraud

Former Lazard Freres & Co. partner Mark Ferber was convicted Friday of fraud and bribery by a federal jury that found he wronged his municipal clients by failing to disclose the financial terms of a fee-splitting contract with Merrill Lynch & Co.

The decision is the highest-profile victory for prosecutors in the government’s crackdown on unethical practices in the $1.3-trillion municipal bond market and adds impetus to the Securities and Exchange Commission’s investigation of Ferber. He now faces the risk of also being banned from the securities industry.

Friday’s action capped a trial that began more than two months ago with federal prosecutors branding Ferber as a schemer whose greed motivated him to hide the financial terms of the contract from the clients he served as a financial advisor. Ferber testified that he had disclosed all he was allowed to divulge under the contract with Merrill.

Ferber, 43, faces five years imprisonment on each of the 58 counts and could be ordered to pay millions of dollars in fines and restitution. But prosecutors said it is unlikely that any prison terms would run consecutively.

U.S. District Judge William Young, who disbarred Ferber from the Massachusetts bar after the verdicts, set sentencing for Nov. 4.

The government’s effort to clean up the industry has resulted in the elimination of questionable habits, such as using political donations to influence the awarding of bond business. Friday’s government victory, along with stricter regulations, should help eradicate other dubious practices, market participants said.

“While [the trial] was occurring, people were probably watching themselves a little closer, so that’s already been taking place,” said Bob Zubak, who manages about $16 billion in municipal bonds at Allstate Insurance Corp. in Northbrook, Ill.

“It’s a smashing win for the government, a definite reversal of the way it seemed to be going,” said Alan Bromberg, a professor at Southern Methodist University in Dallas who specializes in securities law and followed the trial. “The SEC will be glad to have an example of corruption in the muni industry they are always complaining about.”

In June, a federal jury in New York acquitted financial advisor Nicholas Rudi of kickback charges. Jurors said afterward that Rudi’s municipal clients in New Jersey didn’t suffer economic harm, an argument Ferber also pursued.

Federal prosecutors hinged much of their case against Ferber on a contract he maintained with Merrill Lynch, one of the nation’s largest bond underwriters.

The contract provided that Ferber would help Merrill develop its municipal finance business while also acting as an independent financial advisor to such government entities as the U.S. Postal Service; Washington, D.C.; the state of Michigan; and the Massachusetts Water Resources Authority.

Government officials alleged that Ferber and the companies failed to properly inform Ferber’s clients of the existence of the contract.

Merrill and Lazard settled a civil suit tied to the allegations by paying $24 million in fines, a record in the municipal bond market. The firms did not admit or deny guilt in connection with the settlement.

Prosecutors hailed Friday’s verdict as a vindication of their decision to bring criminal charges in the case.

“This trial represented Mark Ferber’s betrayal of trust for his own gain,” Deputy U.S. Atty. Brien O’Conner said. “This was a tough case with tough issues, but the decision is a vindication of the government’s process.”

Ferber, who showed no reaction as the verdicts were read, will appeal, his lawyer said. He is free on a $250,000 bond pending sentencing.