Attorney General Gansler Announces $90 Million Settlement with UBS for Anticompetitive Scheme that Defrauded State Agencies, County Governments, and Non-Profits
MD ( May 4, 2011) - Attorney General Douglas F. Gansler today announced a $90.8 million agreement with Union Bank of Switzerland, UBS, for its involvement in a nationwide scheme to rig bids and defraud state agencies, county governments and non-profits in their purchase of municipal bond derivatives. The $90.8 million settlement is one component a larger settlement UBS is entering into simultaneously with the United States Department of Justice, the Securities and Exchange Commission, and the Internal Revenue Service. The amount includes $70.8 million paid to a state settlement fund and $20 million paid directly to certain government entities and non-profits in resolution of the SEC’s claim. Eligible Maryland entities will receive a total of approximately $1 million under the settlement.
“This settlement continues our state antitrust task force’s effort to prosecute anticompetitive conduct in the market place for municipal bond derivatives” said Attorney General Gansler. “Taxpayer money was invested in these rigged or tainted municipal contracts. As a result of this settlement, government and non-profit entities will finally receive compensation for the illegal conduct.”
Today’s global settlements are the result of an ongoing investigation by Maryland and a multistate group that focuses on individuals at UBS, other major financial institutions and certain brokers in connection with the marketing and sale of municipal derivative investments, which are typically investment contracts that government bond issuers use to reinvest the proceeds of tax-exempt bond offerings until the funds are needed. The transactions are often awarded after a competitive bidding process or negotiated directly between the financial institution and the issuer. UBS is the second financial institution to settle with the state working group in the ongoing municipal bond derivatives investigation. Maryland and the other states settled with Bank of America for $67 million in December of last year.
From approximately 2001 through 2004, UBS and other financial institutions and brokers rigged bids, received and provided “last looks” on bids, and submitted non-competitive “courtesy” bids on these investments. The schemes enriched financial institutions or brokers at the expense of government entities and non-profit entities. As a result of this misconduct, State agencies, county governments and Maryland non-profits 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 marketplace.
Other states joining Maryland in the UBS settlement include Alabama, California, Connecticut, Florida, Illinois, Kansas, Massachusetts, Michigan, Missouri, Montana, Nevada, New Jersey, New York, North Carolina, Ohio, Pennsylvania, South Carolina, Texas and Wisconsin.
In making today’s announcement, Attorney General Gansler thanked Chief of the Antitrust Division, Ellen Cooper, and Deputy Chief, John Tennis, the assistant attorneys general who led the investigation.