Bloomberg News

ubs phony transactions

August 16, 2012

CDR Financial Products Inc. took payments from UBS AG (UBSN)’s municipal derivatives group for work CDR never performed 10 to 15 times in return for rigging municipal bond bids, a former CDR senior vice president told jurors in Manhattan federal court today.

Douglas Goldberg, who worked for Beverly Hills, California- based CDR from 1994 until 2006, testified four members of the UBS team facilitated payments from Financial Security Assurance Holdings Ltd. to CDR for brokering swap transactions CDR never did.

According to Goldberg, the payments, the largest of which was for about $475,000, were actually to thank CDR for ensuring FSA Holdings and UBS won bids CDR brokered.

Goldberg is testifying for the government in a trial against Peter Ghavami, the former head of UBS’s municipal derivatives group, and Michael Welty and Gary Heinz, both former vice presidents in the group. The men are charged with conspiracy to defraud municipal issuers and U.S. tax authorities, as well as wire fraud and mail fraud.

Goldberg also testified about examples of transactions he said he rigged with UBS.

Discussing one involving the Centinela Valley Unified School District in Lawndale, California, Goldberg told jurors, “I called Mark Zaino at UBS and told him that we were going to be doing this transaction and we could set it up for him.”

Zaino, a former member of the UBS municipal derivatives and reinvestment desk, testified for the government earlier in the trial.

Winning Bid

Goldberg said he told Zaino UBS would owe CDR if it won the bid.

“You’ll have to figure out some way to get us paid,” Goldberg said he told Zaino. Within two days, Goldberg told jurors, UBS had asked CDR to send an invoice for $65,000 supposedly for a deal involving the state of Illinois. Goldberg said that though CDR didn’t work on the Illinois deal, it did get paid.

Goldberg pleaded guilty in March 2010 to one count of bid rigging and two counts of fraud. He is testifying as part of a cooperation agreement with the government, but told jurors he faces up to 35 years in prison.

Defense attorneys will begin questioning Goldberg tomorrow.

The case is U.S. v. Ghavami, 10-cr-1217, U.S. District Court, Southern District of New York (Manhattan).

To contact the reporter on this story: Emily Grannis in New York at egrannis@bloomberg.net

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net


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