UBS takes $160 million muni probe hit

May 4, 2011, 11:52 PM UTC

Another day, another black eye for Wall Street.

UBS (UBS) agreed Wednesday to pay $160 million to settle charges it defrauded local government bond issuers for five years through a bid-rigging scheme. The scheme drove up the prices municipal issuers paid, the authorities said, and delivered millions of dollars in ill-gotten gains to the Swiss bank.

Lovers, not fighters

UBS rigged more than 100 bond auctions in 36 states between 2000 and 2004, officials said. UBS, naturally, neither admitted nor denied the charges, a development that left it predictably ecstatic.

UBS is pleased to have resolved this matter with its regulators. The underlying transactions were entered into in a business that no longer exists at UBS and involved employees who are no longer with the firm. The full settlement amount was provisioned in prior quarters and will have no effect on the firm’s future financial results or on any current business of UBS.

It’s all good, yes. The settlement, with the Securities and Exchange Commission, Justice Department and 25 states attorney general, is the latest development in a long-running probe of banker manipulation of the muni bond market.

Authorities stressed that their investigation is ongoing, and they helpfully added that anyone wishing to be swept up in it should promptly read up on what UBS did.

“Our complaint against UBS reads like a ‘how-to’ primer for bid-rigging and securities fraud,” said Elaine C. Greenberg, chief of the SEC’s Municipal Securities and Public Pensions Unit. “They used secret arrangements and multiple roles to win business and defraud municipalities through the repeated use of illegal courtesy bids, last looks for favored bidders, and money to bidding agents disguised as swap payments.”

It’s not clear how many will be taking the SEC up on that generous offer, given that quite a few people seem to have been able to figure out how to bilk municipalities without the help of a how-to guide. High marks to them for being such quick studies, I guess.

Among these bright shining lights of the muni fraud world are Bank of America (BAC), which agreed in December to pay $137 million to settle related charges (without admitting or denying anything, mind you!).

The government said 18 individuals face criminal charges in the probe, including former UBS broker Mark Zaino, who pleaded guilty last year to fraud and is to be sentenced in December.  The authorities’ statements, the nonsense about primers aside, suggest he won’t be the last.

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