HARRISBURG – Acting Attorney General Bill Ryan has announced a $90.8 million multi-state settlement with Union Bank of Switzerland (UBS) as part of an ongoing national investigation into bid-rigging and fraudulent conduct that victimized state agencies, municipalities, school districts and non-profit organizations who were seeking to invest or protect the proceeds of tax exempt bonds.
“This settlement is expected to return significant amounts of restitution to organizations across Pennsylvania, including public school districts, cities, county governments, municipal authorities and state-related agencies,” Ryan said.
“These agencies were seeking safe investments for bond issues, or attempting to reduce the cost of borrowing or manage their risks, but instead fell victim to a national scheme intended to artificially increase costs or boost profits for large banks, brokers and financial service firms.”
Ryan noted that the multi-state settlement with UBS is part of a coordinated national settlement that also involves several federal agencies, including the Securities and Exchange Commission (“SEC”), the Internal Revenue Service (“IRS”) and U.S. Department of Justice. The settlement with UBS follows a $67 million multi-state agreement involving similar conduct by Bank of America, which was announced in December 2010.
Under the terms of the settlement agreement, UBS will pay the states $63.3 million as restitution for victimized governmental and nonprofit entities. Additionally, UBS will directly pay certain eligible entities from a fund of $20 million pursuant to an agreement between UBS and the SEC.
Ryan said the UBS and Bank of America settlements are part of a broad and ongoing national investigation into the marketing and sale of municipal derivative investments, often used by government agencies and non-profit organizations to reinvest the proceeds of tax-exempt bond offerings until those funds are needed.
According to the settlement agreement, between 2001 and 2004 UBS along with other financial institutions and brokers allegedly rigged bids, received and provided “last looks” on bids and/or submitted non-competitive “courtesy” bids on investments. UBS is also accused of paying kickbacks to brokers in exchange for their assistance in securing certain municipal bond derivative transactions.
“These alleged schemes caused state, local and non-profit entities to enter into contracts that cost more or earned less than they should have received in a competitive marketplace,” Ryan said.
“This settlement will compensate Pennsylvania victims for their losses, substantially giving back the funds they should have received when they initially made their investments.”
Ryan said the investigation has identified approximately 25 Pennsylvania entities that may be eligible for restitution, including: The Pennsylvania Turnpike Commission, Pennsylvania Housing Finance Agency, Pennsylvania Higher Education Assistance Agency (PHEAA), Philadelphia University, Swarthmore College, LaSalle University, Lafayette College, Gettysburg College, Carnegie Mellon University, the Pittsburgh Water and Sewer Authority, Montgomery County and Children’s Hospital of Philadelphia. All of the Pennsylvania entities that are eligible to participate in this settlement will be contacted with instruction about how to file a claim.
Ryan said the agreement also requires UBS to pay a civil penalty of $2.5 million along with an additional $5 million to be used by the states to offset the cost of the investigation.
The Pennsylvania portion of the case was handled by Chief Deputy Attorney General James A. Donahue III and Deputy Attorney General Joseph S. Betsko, of the Attorney General’s Antitrust Section.
The multi-state settlement includes Alabama, California, Colorado, Connecticut, the 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.