Two former UBS AG municipal-bond executives accused of rigging bids gave a contact at a General Electric Co. unit early notice of how much to bid on bonds, a former colleague testified.

Mark Zaino, who worked on the bond desk at UBS with the defendants, yesterday walked jurors in federal court in Manhattan through three transactions, involving bond issues for Puerto Rico, the Massachusetts Educational Financing Authority and a Rhode Island housing project.

Zaino testified that defendants Gary Heinz and Michael Welty often worked with a contact at GE's Financial Guaranty Insurance Co. and gave FGIC early notice of how high or low to bid on bonds. The men are on trial along with Peter Ghavami, the former head of UBS's municipal-derivatives group.

Zaino, whose testimony was met with frequent objections from defense attorneys, said he hadn't directly participated in the Puerto Rico or Rhode Island deals and knew about them because the group members discussed their work with each other.

"I routinely discussed the transactions I worked on with Mr. Ghavami," Zaino said, adding later that he consulted with Welty and Heinz as well. Zaino said he was the primary agent on the Massachusetts project and dealt with the same person at FGIC, Peter Grimm, that Welty spoke with for the Rhode Island transaction.

Prosecutors asked Zaino to authenticate and explain recorded phone calls between Welty and Grimm, and between Grimm and Zaino.

 "My understanding is, Mike is asking Peter Grimm who should be on the bid list," Zaino said in response to one portion of the tape. Grimm was convicted in May of conspiracy to commit fraud by manipulating auctions for municipal bond investment contracts.

Ghavami, Heinz and Welty are charged with conspiracy to defraud municipal-bond issuers and U.S. tax authorities by fixing the prices on the investing agreements.

Zaino told jurors during testimony earlier in the week that he pleaded guilty to three criminal counts in 2010 and is testifying now in the hopes of receiving less than the 35 years in prison he faces for his crimes.

The case is U.S. v. Ghavami, 10-cr-1217, U.S. District Court, Southern District of New York (Manhattan).

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