Another day, another black eye for Wall Street.
UBS (UBS) agreed Wednesday to pay $160 million to settle charges it defrauded local government bond issuers for five years through a bid-rigging scheme. The scheme drove up the prices municipal issuers paid, the authorities said, and delivered millions of dollars in ill-gotten gains to the Swiss bank.
UBS rigged more than 100 bond auctions in 36 states between 2000 and 2004, officials said. UBS, naturally, neither admitted nor denied the charges, a development that left it predictably ecstatic.
UBS is pleased to have resolved this matter with its regulators. The underlying transactions were entered into in a business that no longer exists at UBS and involved employees who are no longer with the firm. The full settlement amount was provisioned in prior quarters and will have no effect on the firm's future financial results or on any current business of UBS.
It's all good, yes. The settlement, with the Securities and Exchange Commission, Justice Department and 25 states attorney general, is the latest development in a long-running probe of banker manipulation of the muni bond market.
Authorities stressed that their investigation is ongoing, and they helpfully added that anyone wishing to be swept up in it should promptly read up on what UBS did.
"Our complaint against UBS reads like a 'how-to' primer for bid-rigging and securities fraud," said Elaine C. Greenberg, chief of the SEC's Municipal Securities and Public Pensions Unit. "They used secret arrangements and multiple roles to win business and defraud municipalities through the repeated use of illegal courtesy bids, last looks for favored bidders, and money to bidding agents disguised as swap payments."
It's not clear how many will be taking the SEC up on that generous offer, given that quite a few people seem to have been able to figure out how to bilk municipalities without the help of a how-to guide. High marks to them for being such quick studies, I guess.
Among these bright shining lights of the muni fraud world are Bank of America (BAC), which agreed in December to pay $137 million to settle related charges (without admitting or denying anything, mind you!).
The government said 18 individuals face criminal charges in the probe, including former UBS broker Mark Zaino, who pleaded guilty last year to fraud and is to be sentenced in December. The authorities' statements, the nonsense about primers aside, suggest he won't be the last.
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Don't look now, but the rating agency just issued a report with this headline:
Municipal Risk For Rated U.S. Banks Appears To Be Contained
You might have thought no one in the financial markets would ever use that word with a straight face after Fed chief Ben Bernanke's March 2007 testimony before Congress on the subprime crisis. As you may recall, he said [emphasis is mine]:
Although the turmoil in the subprime mortgage market has MOREColin Barr - Mar 31, 2011 2:29 PM ET
The latest market upheaval has some investors seeking refuge in a sector that has spent six months getting tagged as toxic – municipal bonds.
The widely discussed threat that stretched state and local governments will default hasn't gone away, obviously. But the premium valuations that prevailed in the muni sector for much of last year have, thanks to a wave of year-end selling spurred by tax changes, heavy deal flow and a rash MOREColin Barr - Mar 17, 2011 6:35 AM ET
Muni bonds don't exactly turn heads when times are good. But lately they are getting a lot more attention than their embattled fans would like.
After rising through the first 10 months of 2010, the average municipal bond fund has lost 3% in just the past month, according to TrimTabs. Some funds have lost 10% or more this fall, as the long bull market in Treasury debt has come up lame MOREColin Barr - Dec 17, 2010 7:05 AM ET
Is the muni bond apocalypse here?
Municipal bond prices have tumbled this month after a yearlong rally, raising fears that the tide has finally turned in the debt markets.
Some funds that buy tax-exempt muni bonds have dropped as much as 8% in just two weeks. Funds that regularly traded at a modest premium to net asset value lately fetch a sizable discount. The rout has unfolded even as inflation, unemployment and MOREColin Barr - Nov 19, 2010 6:02 AM ET
Illinois may well be destined to be our very own Greece, but it hasn't caught the Greek disease just yet.
The state was able to sell $900 million in taxable bonds Wednesday at lower-than-expected yields, thanks in part to demand from the very foreign investors who might in more placid times have been tempted to buy Greek bonds.
The Illinois bonds, issued under the Build America Bonds program under which the feds pick MOREColin Barr - Jul 14, 2010 5:00 PM ET
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