James Hertz, 53, formerly with JPMorgan Chase, a banker who confessed to conspiring to fix prices on muni bond investment contracts, said he was aided by a Minnesota company that ran auctions for the deals on behalf of public agencies.  At his plea hearing on 11/30, Mr. Hertz said that Sound Capital Management, an Eden Prairie-based financial adviser to local governments, provided him with other competitors' bids, which enabled him to adjust his offer and win the deal. 

Sound Capital was one of at least 3 financial advisers that federal agents raided in 2006 - part of a national investigation of a conspiracy among banks to carve up the market for investments made with money that public agencies raise in the $2.8 trillion muni bond market.  The Justice Department hasn’t accused Sound Capital of wrongdoing, CEO Johan Rosenberg said he has no indication that anyone at the firm will face charges and disputed Hertz’s characterization.  "Every situation can be interpreted two ways,” he said. “Sound Capital continues to stand by its practices."

    Bigger Profit.   Hertz testified that information from Sound Capital enabled JPMorgan to be awarded the contract at an increased profit.  A JPMorgan spokesperson declined to comment, although she did say in an 11/30 e-mail that JPMorgan fired Hertz in 2007 when he failed to cooperate with the bank’s internal investigation of the matter.

As a result of the federal probe, advisers have admitted to receiving kickbacks from bankers in return for steering investment work their way.  Eight people have admitted to participating in the conspiracy, including a former banker with Bank of America Corp.;  9 others are fighting charges.  BofA this month agreed to pay $137 million to settle state and federal investigations into the reinvestment business.    [Bloomberg, 12/17]