WASHINGTON — A federal court in New Jersey has approved UBS Financial Services Inc.’s $47.2 million settlement with the Securities and Exchange Commission over bid-rigging of municipal bond-related contracts as well as the amounts of restitution that are to go to each of
Judge William J. Martini of the U.S. District Court for the District of New Jersey in Newark on Friday signed the final judgment. It is part of an overall settlement of more than $160 million that UBS entered into with the SEC, the Internal Revenue Service and the Justice Department, along with 25 attorneys general.
UBS, headquartered in Weehawken, N.J., neither admitted nor denied the SEC allegations but waived its right to an appeal.
The highest amount of restitution, almost $6.48 million, will go to Massachusetts in connection with a $2.28 billion refunding and consolidated loan transaction sold in June 2002. The smallest amount, $19,230, will go to the Holdenville, Okla., Public Works Authority with regard to $6.76 million of taxable utility system refunding revenue bonds sold in July 2002 that were exchangeable for tax-exempt bonds in 2003.
The list of transactions attached to the final judgment shows which ones the SEC was referring to in its complaint against UBS.
One transaction cited in the SEC complaint was $823.85 million of general obligation bonds sold by Massachusetts in October 2001. The financing involved a $638.5 million forward-purchase agreement for which UBS was the bidding agent.
Each firm that wanted to provide the agreement was required to submit bids by telephone and then by fax.
But in October 2001, a UBS managing director hosted a breakfast for a representative of one of the provider firms, referred to only as Provider A by the SEC. Another UBS representative suggested that the firm could help Provider A win the contract for the forward-purchase agreement from the state and on Oct. 31, 2001, gave Provider A a “last look” at all of the bids, so that it could beat them and win the award.
In return, Provider A paid UBS at least $175,000 in undisclosed and improper payments in 2002 for alleged services that were never really rendered, according to the SEC. On. Nov. 15, 2001, at the bond closing, a UBS officer falsely certified in writing that the bank had run a bona fide, competitive solicitation for the contract to provide the forward-purchase agreement.
Another transaction cited in the SEC complaint was $649.73 million of tobacco settlement asset-backed bonds that the Rhode Island Tobacco Settlement Financing Corp. sold in June 2002. The financing involved an agreement to purchase $343 million of government securities in the future. Another firm served as bidding agent, referred to by the SEC as Bidding Agent B, for the forward-purchase agreement.
The day before the bid, a UBS representative called someone with its toughest competitor, referred to as Provider A, to say that UBS wanted to win the contract, “but may be in the market to buy paper,” the SEC said.
Over drinks that night the two parties agreed that in return for Provider A not bidding on for the forward-purchase agreement, UBS would bid and also purchase the underlying government securities from that firm at excessive, off-market prices, with the two firms equally sharing the profits, the SEC said.
Separately, UBS asked another firm bidding, Provider D, to provide a “courtesy bid” deliberately designed to lose, the regulator said. Ultimately, UBS won the transaction with a bid equivalent to a purchase price of $295.3 million, making a profit of $1.425 million, the SEC said.
The government securities were purchased at $700,000 greater than their value, according to the SEC. UBS again falsely certified that the bidding process was competitive.
