SEC Press Release: Fraudulent Bidding Practices

SEC Charges UBS with Fraudulent Bidding Practices Involving Investment of Municipal Bond Proceeds

The Securities and Exchange Commission (SEC) issued a press release today announcing that it had

"charged UBS Financial Services Inc. (UBS) with fraudulently rigging at least 100 municipal bond reinvestment transactions in 36 states and generating millions of dollars in ill-gotten gains. To settle the SEC's charges, UBS has agreed to pay $47.2 million that will be returned to the affected municipalities. UBS and its affiliates also agreed to pay $113 million to settle parallel cases brought by other federal and state authorities."

This is the SEC Complaint and the Litigation Release No. 21956.

Readers may remember a very similar SEC charge against the Bank of America Securities in December of last year. UBS was the bidding agent on behalf of the municipalities (and other parties) in the market for reinvestment products. According to the SEC, UBS rigged the bidding process. For example, UBS set up the bidding process such that it "illicitly won bids as a provider of reinvestment products" as well as bids for other providers when it was a bidding agent for municipalities. It also secretly paid bidding agents in the form of swap payments. By playing multiple roles in the competitive bidding process, UBS was able to effectively rig the transactions.

Municipal bonds are bonds issued by government entities at the city, county and state levels. Municipalities issue bonds to finance their projects for the public good. These bonds are called municipal bonds, and their rates may be fixed or floating. They are usually long term bonds. Municipalities usually use the proceeds of the bonds to purchase reinvestment products before using them for the municipalities' intended purpose.

SLCG has written several papers relating to municipal bonds:

• Leveraged municipal bond arbitrage
• Corporate and municipal bonds

Investors may find in our dedicated website many other interesting papers and notes.