Ex-UBS Executives Go to Trial in Bond Bid-Rigging Case
By Bob Van Voris and Martin Braun – Jul 30, 2012 12:00 AM ET.
Peter Ghavami, former co-head of UBS AG (UBSN)’s municipal-derivatives group, goes on trial today with two ex-colleagues in a bond bid-rigging probe in which banks have paid more than $700 million to settle U.S. claims.
Ghavami, Gary Heinz and Michael Welty are charged in a six- count indictment with “long-running conspiracies and schemes to defraud” municipal-bond issuers and U.S. tax authorities by fixing prices on agreements for investing the proceeds of municipal-bond sales.
The trial, in front of U.S. District Judge Kimba Wood in Manhattan, is the result of a nationwide probe of bid-rigging involving banks and brokers including CDR Financial Products Inc.
Prosecutors said they will also offer testimony from witnesses who have pleaded guilty and agreed to cooperate. Those people may include Mark Zaino, a former UBS employee who was a key witnesses in the Carollo case. Photographer: Gianluca Colla/Bloomberg
Prosecutors expect to prove “the knowing and active participation” of UBS, JPMorgan Chase & Co. (JPM), Bank of America Corp. and General Electric Co. (GE) in the fraud alleged against the three former UBS executives, according to a July 6 court filing.
Bank of America, JPMorgan Chase, UBS, Wells Fargo & Co. (WFC) and GE Funding Capital Market Services, a former unit, have paid more than $700 million to settle claims by the government. Beverly Hills, California-based CDR and 13 individuals have pleaded guilty to criminal charges.
In May, three former GE bankers, Dominick Carollo, Steven Goldberg and Peter Grimm, were found guilty by a federal jury in Manhattan of conspiracy to commit fraud by manipulating auctions for municipal-bond investment contracts. The government claimed that from August 1999 to November 2006 the men gave kickbacks to brokers hired by local governments to solicit bids, seeking to win auctions and increase their profit.
Carollo, Goldberg and Grimm have asked the trial judge to throw out the verdict.
At the Ghavami trial, prosecutors said they will present recordings of conversations between the banker-defendants and brokers hired by local governments, as they did in the Carollo case. That evidence will show how they worked together to manipulate rates on the investment contracts and cheat states, counties and towns of millions of dollars, prosecutors said. Some of the profit allegedly was shared with the brokers for controlling the process.
The defendants deny any wrongdoing. They have argued that the rigged bids charged by the government were “isolated in a sea of hundreds of other transactions” and were innocent. Wood said she may allow evidence of the uncharged transactions on a case by case basis.
Russell Wilkerson, a spokesman for GE Capital, and Bank of America spokesman William Halldin declined to comment on the trial. Christiaan Brakman, a UBS spokesman, and JPMorgan Chase spokesman Joseph Evangelisti didn’t immediately return calls seeking comment yesterday.
As many as 200 recordings related to about 40 deals will be put into evidence, prosecutors told Wood in the July 9 filing.
The government claims bidders on investment contracts were often given “last looks” at other bids, intentionally submitted losing bids and steered investment contracts in exchange for kickbacks or favorable treatment on future auctions.
Prosecutors said they will also offer testimony from witnesses who have pleaded guilty and agreed to cooperate. Those people may include Mark Zaino, a former UBS employee who was a key witnesses in the Carollo case. He may play a similar role in the trial of his former UBS coworkers.
In the Carollo case, Zaino testified that he and others at UBS helped Peter Grimm, a former banker at a GE subsidiary, win bids in exchange for kickbacks. UBS gave Grimm information on what other banks had bid on five deals, allowing him to lower the rate he was prepared to bid and still win, he said. Following the bid, the GE subsidiary would enter into a swap with UBS which served to disguise kickbacks, he testified.
UBS booked profit of more than $1.5 million on three swaps, Zaino said.
“He and others at UBS helped Grimm not only win, but win at profitable rates because Grimm paid,” said Kevin Hart, an antitrust prosecutor, in his closing statement in the Carollo trial.
The government also played a tape at the Carollo trial in which Michael Welty, one of the UBS defendants going to trial today, acted as a broker for a $100 million deal for a Denver- based hospital system in January 2002.
Grimm told Welty he could bid at 2.46 percent or higher, according to a tape played at the May trial. Five minutes later, Welty called Grimm back and told him to bid 2.38 percent. Grimm won the deal and UBS made $75,000.
The amount of evidence collected in the case is massive, Charles Stillman, a lawyer for Ghavami, said in court. The U.S. has provided more than 600,000 audiotapes and hundreds of millions of documents, he said.
Both sides estimate the trial may last about four weeks.
The case is U.S. v. Ghavami, 10-cr-1217, U.S. District Court, Southern District of New York (Manhattan).
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