Ex-UBS Muni Manager Arrested, Arraigned in Justice Probe

WASHINGTON — Peter Ghavami, a former managing director and co-head of municipal bond reinvestment at UBS, was arrested Wednesday night by the Federal Bureau of Investigation as he was entering the country. He was arraigned Thursday on one count of wire fraud in connection with a massive ongoing antitrust probe of the municipal bond market, the Justice Department announced late Thursday.

A Belgium national currently residing in Moscow, Ghavami was brought into custody after arriving on an international flight that landed at John F. Kennedy International Airport in New York, the department said in a press release. He was originally charged in a sealed complaint filed Sept. 16 that was unsealed Thursday

Ghavami also went by an alias Peter Ghavamilahidja, according to the Justice Department. He is the seventh individual to face criminal charges as part of the ongoing Justice Department inquiry into anticompetitive behavior in the muni derivatives and guaranteed investment contract markets.

As part of the probe, a federal grand jury has indicted CDR Financial Products, three current and former officials at the Beverly Hills-based firm, and three former financial services executives.

“Pernicious fraud schemes like the one alleged in this complaint undermine the public’s confidence and trust in the municipal bond and derivatives markets,” said Christine Varney, assistant attorney general in charge of the antitrust division. “This type of anticompetitive conduct will be prosecuted to the fullest extent.”

According to the complaint, which was filed in the U.S. District Court for the Southern District of New York in Manhattan, Ghavami worked in the municipal derivatives subsidiary of UBS from about January 2001 through March 2004.

The complaint does not identify UBS by name, referring to it only as Financial Institution A, with a financial services subsidiary. But Financial Industry Regulatory Authority documents show that Ghavami worked at UBS Financial Services Inc. from April 1999 through March 2004 and then for UBS Securities LLC from March 2004 through December 2007. He joined UBS after working at JPMorgan Securities Inc. from January 1997 to April 1999.

UBS underwrote and provided investment services to municipalities, acted as a broker for investment agreements and other municipal finance contracts, and also served as a provider of swaps related to the contracts.

Ghavami engaged in a fraudulent scheme beginning on or about Oct. 24, 2001, and continuing to at least Feb. 11, 2002, to deprive a municipal bond issuer of money by causing it to award an investment agreement at an artificially determined or suppressed rate, the Justice Department said. 

The bond issuer hired Ghavami’s firm to act as its broker to competitively bid the selection of a firm to invest proceeds from a bond sale, according to the complaint. As a part of the scheme, Ghavami designated in advance which provider would be the winning bidder for a certain investment agreement in exchange for a kickback to be paid to his employer.

“The undisclosed kickback, in the amount of $100,000, was disguised as a fee and paid in exchange for Ghavami’s assistance in manipulating and controlling the bidding process for the investment agreement,” the department said.

The wire fraud charge carries a maximum penalty of 20 years in prison and a $250,000 fine. “The maximum fine may be increased to twice the gain derived from the crime or twice the loss suffered by the victims of the crime, if either amount is greater than the statutory maximum fine,” the Justice Department said.

The charges against Ghavami are based in part on information from a “cooperating witness” that worked at the UBS subsidiary with him. Although the complaint does not identify the witness, Mark Zaino, who formerly worked with Ghavami on the derivatives desk at UBS, pleaded guilty to three criminal counts — conspiracy to restrain trade, conspiracy and wire fraud — in connection with the antitrust probe and agreed to cooperate with U.S. attorneys.

James Mitchell, an attorney with Stillman, Friedman & Schectman PC in New York City, which is representing Ghavami, could not be reached for comment. UBS spokesman Kris Kagle declined to comment.

Ghavami left UBS in late 2007, telling the firm that he planned to take a position elsewhere and that his resignation was unrelated to the Justice Department antitrust investigation. But UBS was later advised by Ghavami’s attorney that he had received a notice from the department on Nov. 30, 2007, warning him that he was a target of a grand jury investigation, according to the FINRA document.

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