UBS to Pay $90 Million for Bid-Rigging Municipal Investment Contracts
Under settlement with AG Coakley's Office, Massachusetts entities to receive $6 million in restitution in connection with nationwide bid-rigging scheme
Governmental and nonprofit entities nationwide that entered into municipal derivative agreements with UBS between 2001 and 2004 will be entitled to more than $63 million in restitution from the state settlement. The agreement also provides that UBS will pay the states $2.5 million in penalties and $5 million in fees and costs of the investigation. The states' settlement also requires UBS to pay $20 million in restitution directly to certain government and not-for-profit entities as part of an agreement with the U.S. Securities and Exchange Commission (SEC). It is expected that Massachusetts entities will be eligible to claim approximately $6 million from today's settlement.
"This settlement is the next step in our effort to combat anticompetitive conduct in the market for municipal bond derivatives," said Attorney General Martha Coakley. "I am pleased that UBS has taken responsibility for its conduct and will pay restitution to the Massachusetts entities harmed by this fraud. Our investigation of this conduct is ongoing and is particularly important given the financial constraints that many state entities, municipalities and non-profits are facing in these difficult economic times."
The settlement involves an investigation of widespread price-fixing and bid-rigging conspiracies among providers and brokers of municipal bond derivatives. The settlement agreement principally alleges that UBS and its marketers profited by rigging bids and receiving "last looks" for municipal bond derivatives. As a result of their agreements, UBS marketers were able to win more business for UBS in the municipal bond derivatives industry and to obtain that business at artificially determined price levels. Absent the collusive conduct, the business would have gone to other providers, or may have been awarded to UBS on better terms for issuers. As a result of this misconduct, state, local and not-for-profit entities entered into contracts at suppressed rates of return on investments or paid higher rates on interest rate hedging instruments than they would have in a competitive market. In addition, UBS sometimes acted as a broker on these transactions, and allegedly improperly shared information or engaged in collusive activities with those bidding to provide the investment agreement.
Under the settlement, eligible government and not-for-profit entities in Massachusetts will be entitled to claim approximately $6 million from the states' settlement fund as restitution for estimated overcharges that resulted from UBS's fraudulent conduct. Eligible entities will be notified of the settlement through a claims administration process.
UBS is the second financial institution to settle with the state working group in the ongoing investigation of this conduct. In December, 2010, Attorney General Coakley announced a similar settlement with Bank of America. In November, 2010, Attorney General Coakley sued Tradition (North America) Inc. in Massachusetts Superior Court for its role as a broker for the Commonwealth on several municipal investment agreements. The states continue to pursue investigations of various other providers and brokers in this industry.
Other states participating in the settlement with UBS are Alabama, California, Colorado, Connecticut, District of Columbia, Florida, Idaho, Illinois, Kansas, Maryland, Michigan, Missouri, Montana, Nevada, New Jersey, New York, North Carolina, Ohio, Oregon, Pennsylvania, South Carolina, Tennessee, Texas and Wisconsin.
Assistant Attorney General Mary Freeley and paralegal Helen Hood of Attorney General Coakley's Antitrust Division and Assistant Attorneys General Aaron Lamb and Madonna Cournoyer, Legal Analyst Melissa Swindel and paralegal Bryan Daly of the Insurance and Financial Services Division are handling the case for the Commonwealth.