Swiss bank UBS AG agrees to pay over $90M in multi-state settlement over bond derivatives scheme

TRENTON – The state Attorney General’s Office said Wednesday 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, according to the Attorney General’s Office.

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.

Approximately $4.8 million will be allocated to eligible New Jersey municipal bond issuers, the AG’s Office reported in a release. 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.

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.  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, 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 AG’s Office stated.

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. 

Swiss bank UBS AG agrees to pay over $90M in multi-state settlement over bond derivatives scheme