UBS agrees to pay $160 million in bid rigging settlement

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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, anti-competitive conduct by former employees from 2001 through 2006, according to the Justice Department.

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 in 2008.

“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 Christine Varney.

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 states.

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 Wisconsin.