On May 4, 2011, UBS AG and the DOJ entered into a settlement agreement to resolve anticompetitive activity in the municipal bond investments market and, as such, admits. acknowledges and accepts responsibility for illegal, anticompetitive conduct by its former employees. UBS will continue to fully cooperate in the Antitrust Division's ongoing muni bond derivatives industry investigation and will pay a total of $160 million in restitution, penalties and disgorgement to federal and state agencies.
In addition to the DOJ settlement, the Securities and Exchange Commission (SEC), the Internal Revenue Service (IRS) and 25 state attorneys general also entered into agreements with UBS requiring the payment of penalties, disgorgement of profits from the illegal conduct and payment of full restitution to the victims harmed by the manipulation and bid rigging by UBS employees.
In the SEC matter, UBS Financial Services was charged with fraudulently rigging at least 100 municipal bond reinvestment transactions in 36 states and generating millions of dollars in ill-gotten gains. In settling with the SEC, UBS agreed to pay
- $47.2 million (earmarked for the affected municipalities);
- $113 million to settle parallel cases brought by other federal and state authorities (payment made by UBS Financial Services and its affiliates)
SIDE BAR: See these SEC materials for additional details:
DOJ Non-Prosecution Agreement
The UBS settlement was fashioned as part of a DOJ non-prosecution agreement under which the government declined to prosecute the company for the manipulation and bid rigging of municipal investment contracts. The decision to proceed via the non-prosecution route was purportedly made in consideration of:
- UBS's admission of conduct;
- its cooperation with DOJ, the SEC, the IRS and the state attorneys general;
- its monetary and non-monetary commitments to the SEC, IRS and state attorneys general; and
- its remedial efforts to address the anticompetitive conduct.
To date, the ongoing investigation has resulted in criminal charges against 18 former executives of various financial services companies and one corporation. Four of these charged executives are former UBS employees: Mark Zaino, Peter Ghavami, Gary Heinz and Michael Welty. Nine of the 18 executives charged have pleaded guilty, including Mark Zaino. In December 2010, Bank of America agreed to pay a total of $137.3 million in restitution to federal and state agencies for its participation in anticompetitive conduct in the municipal bond derivatives market.
SIDE BAR: For prior commentary by Bill Singer on some of the referenced issues, see:
- The Department of Justice Headline About Bank of America (Street Sweeper, December 8, 2010)
- Former J.P. Morgan Banker James Hertz Pleads Guilty to Municipal Bond Bid Rigging (Street Sweeper, December 1, 2010)
- The Budget Crunch Spreads from DOJ to Wall Street's Cops (Street Sweeper, May 4, 2011)