FOR IMMEDIATE RELEASE
NEWS RELEASE
May 6, 2011
For More Information, contact:
Luther Strange
Joy Patterson (334) 242-7491
Alabama Attorney General
Suzanne Webb (334) 242-7351
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AG STRANGE ANNOUNCES $90.8 MILLION NATIONAL SETTLEMENT
WITH SWISS BANK UBS AG REGARDING ANTI-COMPETITIVE
SCHEME THAT DEFRAUDED MUNICIPALITIES AND NONPROFITS
(MONTGOMERY) – Attorney General Luther Strange today announced a
$90.8 million settlement with the multinational Swiss bank, UBS AG, as part of
an ongoing nationwide investigation conducted by an anti-trust task force
representing 24 states’ Attorneys General. The settlement resulted from the
task force’s investigation 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 states’
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 amount to be paid to Alabama entities has not yet
been determined.
The states’ settlement with UBS is part of coordinated separate law
enforcement and regulatory settlements that UBS entered into today with the
U.S. Department of Justice’s Antitrust Division, 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 continues our multi-state antitrust task force’s effort to
prosecute anticompetitive conduct in the marketplace for municipal bond
derivatives,” said Attorney General Strange. “The monies that were invested by
government and not-for-profit entities in these rigged or tainted municipal
derivatives contracts came from taxpayers and, as a result of this settlement,
they will finally receive compensation for the illegal conduct.”
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501 Washington Avenue Montgomery, AL 36104 (334) 242-7300
www.ago.state.al.us Page 2 of 2
Attorney General Strange added “I also want to commend UBS for doing
the right thing by agreeing to step up and cooperate with our investigation and
provide meaningful restitution to those harmed. UBS’s agreement to provide
continuing cooperation – – an essential component of this settlement – –
provides the task force with further evidence against UBS’s coconspirators.”
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 Alabama in the UBS settlement include 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,
Tennessee and Wisconsin.
Attorney General Strange commended Assistant Attorney General
Antitrust Section Chief James M. Steinwinder for his efforts leading the
Alabama investigation.
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