Connecticut Among States In UBS Settlement
By MARCY GORDON, AP Business Writer
WASHINGTON (AP) _ Switzerland’s biggest bank UBS AG has agreed
to pay $160 million to settle charges that it rigged the bidding
process for investment contracts with cities and towns in 24 states
and the District of Columbia.
Federal and state officials announced the settlements Wednesday.
UBS admitted and accepted responsibility for illegal,
anticompetitive conduct by former employees from 2001 through 2006,
the Justice Department said.
The local governments were looking to invest their proceeds from
municipal bond sales. Former UBS employees manipulated the bidding
process to win contracts to sell investments, the Justice
Department and the Securities and Exchange Commission said. UBS
also acted as a bidding agent for municipalities and rigged bids
for the benefit of other financial firms, according to the
authorities. UBS at times “facilitated” the payment of kickbacks
to other bidding agents, who collect proposals for government
business, they said.
In every case, UBS made fraudulent misrepresentations or
omissions and deceived the municipalities, the government said.
The $160 million is being paid as restitution and penalties to
federal agencies and states. Because UBS admitted to the conduct
and cooperated, the Justice Department said it agreed not to
prosecute the bank. UBS, which has extensive operations in the
U.S., says the business unit involved in the conduct was shut down
“UBS and its former executives engaged in illegal conduct that
corrupted the competitive process and harmed municipalities and
ultimately taxpayers, nationwide,” said Assistant Attorney General
Most of the municipal bonds involved were tax exempt. Under
Internal Revenue Service rules, proceeds from sales of tax-exempt
bonds must be invested at fair market value, to be established in a
competitive bidding process. The government said UBS’ conduct
jeopardized the tax-exempt status of billions of dollars in
municipal bonds because the competitive process that sets fair
market value was tainted.
Municipal bonds are issued to build schools, hospitals and roads
in a $2.8 trillion market. About $100 billion of the proceeds from
the bond sales each year are temporarily invested in financial
instruments such as derivatives before being used for the original
purpose of the sales.
The government launched a widespread investigation into the
business of reinvesting municipal bond proceeds after Bank of
America Corp. came forward and disclosed to authorities that its
investment division paid for information that helped the bank gain
an advantage with local governments that were looking to invest
their proceeds from municipal bond sales.
In December, Bank of America agreed to pay $137 million to
resolve allegations that it paid for information that helped rig
the bidding process and win business from cities and towns in 20
Officials said Wednesday the investigation continues. So far the
government has brought criminal charges against 18 former
executives of several financial firms, including four former UBS
employees. Nine of the 18 have pleaded guilty.
The states involved in the UBS settlement are Alabama,
California, Colorado, Connecticut, District of Columbia, Florida,
Idaho, Illinois, Kansas, Maryland, Massachusetts, Michigan,
Missouri, Montana, Nevada, New Jersey, New York, North Carolina,
Ohio, Oregon, Pennsylvania, South Carolina, Texas, Tennessee and
(Copyright 2011 by The Associated Press. All Rights Reserved.)