May 4, 2011 / 8:51 PM / 7 years ago

UBS settles with U.S. in muni bond case

WASHINGTON (Reuters) - UBS AG acknowledged that its former employees in its municipal bond reinvestment desk broke the law, and agreed to pay $160 million to federal and state agencies, the Justice Department said on Wednesday.

UBS settled with the Justice Department, Securities and Exchange Commission, Internal Revenue Service and 25 state attorneys general.

“As part of its agreement with the department, UBS admits, acknowledges and accepts responsibility for illegal, anticompetitive conduct by its former employees,” the Justice Department said in a statement.

Some of the world’s largest banks have been ensnared in a probe into allegations that their employees decided in advance which investment house would win the auctions of guaranteed investment contracts, which are essentially investments that cities and counties buy with proceeds from municipal bond sales.

Often, there is a delay between when bonds are floated and when the money is actually paid out, allowing some time to invest it.

“UBS is pleased to have resolved this matter with its regulators. The underlying transactions were entered into in a business that no longer exists at UBS and involved employees who are no longer with the firm,” the bank said in a statement.

The bank said it had set aside the money and that it would have no effect on financial results.

UBS said the probe into its operations focused on the actions of the municipal reinvestment and derivatives group from 2001 to 2006.

Under the terms of the settlements, UBS will pay $22.3 million to the IRS, $47.2 million to the SEC and $90.8 million to the states.

“This illegal conduct corrupted the competitive process that municipalities were entitled to,” said Christine Varney, head of the Justice Department’s antitrust division. “Our investigation into this industry is active and ongoing.”

Bank of America agreed to settle in December 2010 for $137 million.

Bank of America, the largest U.S. bank by assets, was first to report the bid-rigging problems within its Banc of America Securities unit to the Justice Department before federal law enforcement began an industry-wide investigation.

Eighteen former employees of financial services firms face criminal charges in the probe; four worked for UBS. Nine of the 18 have pleaded guilty, including one from UBS, the Justice Department said.

Three of the people who pleaded guilty worked for CDR Financial Products, also known as Rubin/Chambers, Dunhill Insurance Services Inc. Two CDR employees and one former employee were indicted in October 2009 and charged with participating in bid rigging and fraud.

Elaine Greenberg, head of the SEC’s municipal securities and public pensions unit, said the case was a classic instance of bid-rigging.

“Our complaint against UBS reads like a how-to primer for bid-rigging and securities fraud. They used secret arrangements and multiple roles to win business and defraud municipalities through the repeated use of illegal courtesy bids, last-looks for favored providers and money to bidding agents disguised as swaps payments.”

Reporting by Diane Bartz and Lisa Lambert. Editing by Tim Dobbyn and Robert MacMillan

Our Standards:The Thomson Reuters Trust Principles.
0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below