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Attorney General Van Hollen Announces $90 Million National Settlement with UBS AG for Anticompetitive Scheme That Defrauded Tax-Exempt Bond Issuers


MADISON - Attorney General J.B. Van Hollen today announced a $90.8 million settlement with multinational Swiss bank, UBS AG, as part of an ongoing nationwide investigation conducted by state Attorneys General and federal agencies of alleged anticompetitive and fraudulent conduct in the municipal bond derivatives industry. Pursuant to the Settlement Agreement, UBS has agreed to pay $63.3 million in restitution to state agencies, municipalities, school districts and not-for-profit entities nationwide that entered into municipal derivative contracts with UBS, or used UBS as its broker for such transactions between 2001 and 2004. In addition, UBS agreed to pay a $2.5 million civil penalty and $5 million in fees and costs of the investigation to the settling states. The State settlement also provides that UBS will pay $20 million in restitution directly to certain other government and not-for-profit entities as part of a separate settlement it entered into today with the U.S. Securities and Exchange Commission (SEC).


The State settlement with UBS is part of coordinated, but separate, law enforcement and regulatory settlements that UBS entered into today with the U.S. Department of Justice's Antitrust Unit, the SEC and the Internal Revenue Service. UBS is the second financial institution to settle with the state working group in the ongoing municipal bond derivatives investigation.


“This settlement vindicates our laws against anticompetitive conduct and provides a measure of recovery for the bond issuers who were harmed by the illegal scheme,” said Van Hollen.


Van Hollen added “UBS cooperated with the investigation, which helped us to reach this result. UBS has also agreed to continued cooperation, which will provide further evidence against UBS's co-conspirators.”


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, a group of states began an investigation of allegations that certain large financial institutions, including national banks and insurance companies, and certain brokers and swap advisors, engaged in various schemes to rig bids and commit other deceptive, unfair and fraudulent conduct in the municipal bond derivatives market.


The investigation, which is still ongoing, revealed collusive and deceptive conduct involving individuals at UBS and other financial institutions, and certain brokers with whom they had working relationships. 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 financial institution and/or the broker at the expense of the issuer, depriving the issuer of a competitive, transparent marketplace. As a result of such wrongful conduct, state, local, and not-for-profit entities entered into municipal derivatives contracts on less advantageous terms than they would have otherwise.


Other states joining Wisconsin in the UBS settlement include Alabama, California, Colorado, Connecticut, District of Columbia, Florida, Idaho, Illinois, Kansas, Maryland, Massachusetts, Michigan, Missouri, Montana, Nevada, New Jersey, New York, North Carolina, Ohio, Oregon, Pennsylvania, South Carolina, Texas, and Tennessee.


Assistant Attorney General Gwendolyn Cooley represents the State of Wisconsin in this matter.