Swiss-owned bank UBS has reached a settlement with federal regulators and several states, resolving charges that UBS employees tried to rig the bidding process in the municipal bond derivatives market.
The U.S. Justice Department, Securities and Exchange Commission, the Internal Revenue Service and 25 states brought the action, claiming UBS' actions from 2001 to 2006 corrupted the competitive process and hurt municipalities, as well as taxpayers.
The complaint says several former UBS employees constantly manipulated the bidding process in which local governments invested the revenue raised from the sale of municipal bond offerings.
The bank has agreed to pay $160 million in fines and restitution.
“This settlement is part of our ongoing effort to return taxpayer money to those whom it was intended to benefit – the state agencies, municipalities, school districts, and not-for-profit entities that purchased the derivatives rather than the providers and brokers who engaged in this illegal scheme,” said Missouri Attorney General Chris Koster. “I also want to thank UBS for doing the right thing by cooperating with our investigation and providing meaningful restitution to those harmed.”
Municipal bond derivatives are contracts that tax-exempt issuers use to reinvest the proceeds of bond offerings until the funds are needed, or to hedge interest rate risk. In 2008, a group of states began an investigation of allegations that certain large financial institutions, including national banks and insurance companies, and certain brokers and swap advisors, engaged in various schemes to rig bids and commit other deceptive, unfair, and fraudulent conduct in the municipal bond derivatives market. That investigation is ongoing.
Holding banks responsbile
“Bid rigging and other fraudulent conduct is illegal, and we will hold banks and brokers responsible for their actions,” said Florida Attorney General Pam Bondi. “I am pleased that we were able to reach a resolution that will repay those entities harmed by the fraudulent activity.”
UBS is the second large financial institution to settle bid-rigging charges in the municipal bond derivatives market. Late last year, Bank of America agreed to a $137 million settlement.
UBS issued a statement saying it was glad to have the matter resolved, noting that the underlying transactions were entered into a business that no longer exists within the company.
In addition to Florida and Missouri, Alabama, California, Colorado, Connecticut, District of Columbia, Idaho, Illinois, Kansas, Maryland, Massachusetts, Michigan, Montana, Nevada, New Jersey, New York, North Carolina, Ohio, Oregon, Pennsylvania, South Carolina, Texas, Tennessee and Wisconsin also took part in the settlement.