TRENTON – The Attorney
General’s Office announced today that
the multi-national Swiss bank UBS AG will
pay $90.8 million under a multi-state settlement
for its involvement in a nationwide scheme
to rig bids and engage in other anti-competitive
conduct in connection with the sale of municipal
bond derivatives to state agencies, municipalities,
school districts and not-for-profit entities
who issued municipal bonds.
New Jersey is one of 24
states, along with the District of Columbia,
that entered into the settlement. The multi-state
agreement with UBS is one component of a
coordinated settlement that also includes
separate settlements with the U.S. Department
of Justice’s Antitrust Division, the
U.S. Securities and Exchange Commission
(SEC) and the Internal Revenue Service.
UBS is the second financial
institution to settle with the multi-state
group in its ongoing municipal bond derivatives
investigation. A settlement with Bank of
America was announced in December 2010.
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, the multi-state
group was formed to investigate allegations
that certain large financial institutions,
including national banks and insurance companies,
and certain brokers and swap advisors, engaged
in schemes to rig bids and commit other
deceptive, unfair and fraudulent conduct
in the municipal bond derivatives market.
The investigation revealed
collusive and deceptive conduct between
and among individuals at UBS, individuals
at other financial institutions, and certain
brokers and swap advisors.
The wrongful conduct took
the form of bid-rigging, submission of non-competitive
courtesy bids and submission to government
agencies, among others, of fraudulent certifications
of compliance with U.S. Treasury regulations.
Regardless of the means used to perpetrate
the schemes, the objective was to enrich
the participants at the expense of the issuer,
thus depriving the issuer of a competitive
and transparent marketplace. As a result
of such wrongful conduct, state, local,
and not-for-profit entities received less
favorable terms on the municipal derivatives
contracts.
The multi-state settlement
requires UBS to pay $70.8 million directly
to the multi-state group, $63.3 million
of which will be allocated for restitution
to state agencies, municipalities, school
districts and not-for-profit entities nationwide
that entered into municipal derivative contracts
with UBS, or that used UBS as its broker
for such transactions between 2001 and 2004.
Approximately $4.8 million
will be allocated to eligible New Jersey
municipal bond issuers. In addition, $2.5
million is for a civil monetary penalty
and $5 million is for the fees and costs
of the investigation. As consideration for
the multi-state settlement, UBS will also
pay $20 million in restitution directly
to certain other government and not-for-profit
entities as part its separate settlement
with the SEC.
Other states joining New
Jersey and the District of Columbia in the
UBS settlement include: Alabama, California,
Colorado, Connecticut, District of Columbia,
Florida, Idaho, Illinois, Kansas, Maryland,
Massachusetts, Michigan, Missouri, Montana,
Nevada, New York, North Carolina, Ohio,
Oregon, Pennsylvania, South Carolina, Texas,
Tennessee and Wisconsin.
Deputy Attorney General
Joshua T. Rabinowitz, Deputy Attorney General
Isabella T. Stempler, Deputy Attorney General
Toral M. Joshi, Assistant Attorney General
Brian F. McDonough, and Assistant Attorney
General Carol Jacobson handled the UBS matter
on behalf of the state.
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