A former JPMorgan Chase & Co. (JPM:US) banker told jurors at a bid-rigging trial about a dinner meeting at a Manhattan restaurant where municipal derivatives executives from his firm and UBS AG (UBSN) agreed not to compete with one another.
Alexander Wright took the witness stand in the criminal trial of Peter Ghavami, the former head of UBS’s municipal derivatives group, and told jurors about a dinner where bankers from the two firms agreed to “forestall head-to-head competition.” He said the meeting took place at Veritas, possibly in early 2001.
They discussed “ways the competition could be dulled” and how to “keep other competitors away,” Wright told jurors today in Manhattan federal court.
Wright, 45, pleaded guilty last month to conspiracy to rig bids on a bond deal and is testifying for prosecutors as part of a plea deal for leniency. Two other men are also on trial: Garry Heinz and Michael Welty, who were both vice presidents and municipal reinvestment marketers. The three are charged with conspiracy to defraud municipal-bond issuers and U.S. tax authorities by fixing prices on investing agreements.
The dinner meeting aimed to ease the tension between the municipal derivatives desks of New York-based JPMorgan and Zurich-based UBS following UBS’s acquisition in 2000 of Paine Webber, Wright said. Before then, JPMorgan had done deals with Paine Webber, he said. That changed after UBS bought the smaller firm.
Wright said he, Ghavami and Heinz met at Veritas to convince Wright’s boss, who was also there, that “this was a good relationship,” he testified. At the dinner, the bankers discussed clients and ways they could share them. In those instances in which the two firms did compete, “that should be walled off from the rest of the relationship,” Wright said.
After recounting the dinner, Wright told jurors about several transactions where, he said, JPMorgan and UBS disclosed their secret bids to one another or agreed not to compete against each other.
One deal involved an effort in 2001 by the Greater Orlando Aviation Authority in Florida to unwind a transaction it had earlier entered into with JPMorgan. Wright said his desk badly wanted the new deal and was worried that rival firms would drive down the potential profit with competitive bids.
“We very much wanted to win,” Wright said.
Prosecutors played phone conversations from the firms’ recorded telephone lines in which bankers at the two firms UBS appeared to discuss bids.
“We’re gonna be coming in pretty aggressive,” one JPMorgan banker says of his firm’s anticipated bid.
Jurors heard another call where Ghavami asks JPMorgan to serve as a “check-away.” Wright testified that Ghavami wanted JPMorgan to vouch to a UBS client that the price UBS was charging in a transaction was fair.
The case is U.S. v. Ghavami, 10-cr-1217, U.S. District Court, Southern District of New York (Manhattan).
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