UBS Admits Rigging Auction Market on Derivatives

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UBS Settles Fraud Cases Over Munis


WASHINGTON — The Swiss bank UBS agreed to pay $160 million in fines and restitution because former employees conspired to rig bids in the municipal bond derivatives market, federal and state officials announced on Wednesday.

The Justice Department, the Securities and Exchange Commission, the Internal Revenue Service and 25 state attorneys general entered into the agreement with UBS, which admitted that, from 2001 through 2006, several of its former employees repeatedly manipulated the bidding process when local governmental entities or nonprofit organizations sought to invest the proceeds of municipal bond offerings.

The conduct of UBS and its employees “corrupted the competitive process and harmed municipalities, and ultimately taxpayers, nationwide,” said Assistant Attorney General Christine A. Varney, who oversees the federal antitrust division. “Today’s agreements with UBS ensure that restitution is paid to the victims of the anticompetitive conduct, that UBS pays penalties and disgorges its ill-gotten gains.”

UBS said in a statement that it was pleased to have resolved the matter. “The underlying transactions were entered into in a business that no longer exists at UBS, and involved employees who are not longer with the firm,” the statement said. The company also said that it had made provisions for the settlement in prior quarters and it therefore “will have no effect on the firm’s future financial results or on any current business of UBS.”

UBS is the second big banking institution to settle accusations of bid-rigging in the municipal bond derivatives market. In December, Bank of America agreed to pay $137 million in restitution after voluntarily disclosing its anticompetitive conduct and agreeing to cooperate with authorities in further investigations.

As part of the broader investigation of bid-rigging in the municipal securities market, the Justice Department has brought criminal charges against 18 former executives of various financial services companies. Nine of the 18 have pleaded guilty, including one former UBS employee. Three other UBS employees also have been charged with criminal activities related to the municipal market.

Most of the $160 million to be paid by UBS will go to municipalities that were affected by the conduct, officials said, which involved more than 100 transactions. According to an outline of the charges by the S.E.C., the company played various roles in the illegal bidding scheme, sometimes obtaining advance information about competing bids for financial products, and in other cases facilitating illegal activity by submitting sham bids for services.

Our complaint against UBS reads like a ‘how to’ primer for bid-rigging and securities fraud,” Elaine C. Greenberg, chief of the S.E.C.’s municipal securities and public pensions unit, said at a press conference announcing the settlement.

UBS, which acquired the American investment bank
PaineWebber in 2000, was at the time of its conduct one of the largest underwriters of municipal securities in the nation. UBS closed its municipal reinvestment and derivatives desk in 2008.

State and local governments often sell bonds to raise money to pay for projects like roads, schools and hospitals. Until they are ready to spend the money, the entities invest the proceeds in contracts that are often tailored to meet specific needs in terms of the timing of spending and required collateral to insure their debts.

Investment firms offer to sell those contracts at given prices, and bidding for the right to provide the service is supposed to be conducted at arm’s length. But UBS often conspired with the party overseeing the bidding to guarantee that it bid just enough to win the contract, thereby maximizing its own profit.

Of the $160 million to be paid by UBS, $91 million will be routed through the Justice Department and the states to the municipalities and other customers affected. UBS will also pay $47 million through the S.E.C. to the customers affected, and $22 million through the I.R.S.

Under I.R.S. regulations, the proceeds of tax-exempt municipal securities offerings must be invested at fair market value. Because of the fraudulent conduct by UBS, the tax-exempt status of billions of dollars of securities was jeopardized, officials said. That status was reaffirmed by the I.R.S. as part of its settlement with the company.

12 Responses

  1. There are numerous UCC’s filed by the lenders to UBS back in the day. Found one from Indymac to UBS dated 5/11/07 pledging ALL mortgage notes. You can find it on SCRIBD. Also you can find the Master Loan Purchase and Servicing Agreement between UBS and Indymac. If you google UBS, they have many lawsuits from investors over the securities they were involed with. There is also a company called Structured Asset Securities Corporation. Looks like both of these were involed with Lehman Brothers. Anyone care to do more investigating?

  2. so you dont go to jail for these crimes , I forgot, prisons are private corps that are …..will some one who gets it help me finish my sentence.

  3. OOPS! forgot to paste in the site link ..

  4. This is a good site for info on RICO … This definately falls under the act… I’m currently looking for a Florida lawyer to sue my city under RICO (on a contingency basis) over their red light camera program… I have an argument regarding flawed methodology that applies specifically to this one city that has not previously been used in other cases and I feel it is STRONG … contact me if you know someone who would not be afraid to face corporate lawyers (with a $1M bankroll as defined in the contract with the city)…

  5. Excellent analysis – I’d only like to add that fines are simply a cost of doing business to UBS, and it’s business as usual with no admission of wrong doing.

  6. Im a newbie just wanted to say hi.

  7. From

    ‘The RICO Act, short for Racketeer Influenced and Corrupt Organizations Act, was enacted by the Organized Crime Control Act of 1970. Its main purpose is to give extended penalties in the prosecution of organized criminal acts, and was targeted at the mob although it has since then been used in cases including police departments and gang activity.
    To be found guilty of racketeering under the RICO act, a person must have committed two of 35 crimes-27 federal crimes and 8 state crimes-within a 10-year period. Prosecution under the RICO act also allows for a civil suit component, with damage penalties tripled if found guilty. If found guilty, the defendent must also forfeit all gains made from the illicit activities.”

    Doesn’t all this bank fraud fall under RICO?

  8. Same old Same..

  9. Can someone please define RICO for me?

  10. […] Source: Livinglies’s Weblog […]

  11. LOL they paid pennies on the penny, and bet you they admitted to no wrong doing, blamed it on the workers, and the bankster made off with the billions. Same stuff different pile.

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