Bloomberg News

Ex-UBS Executive Ghavami Guilty in Municipal Bid-Rig Case

August 31, 2012

Ex-UBS Executive Ghavami Guilty in Municipal Bid-Rig Case

Zurich-based UBS AG and other banks have paid more than $700 million to settle U.S. claims over the bid rigging scheme. Photographer: Gianluca Colla/Bloomberg

Ex-UBS AG (UBS:US) managing director Peter Ghavami and two former colleagues were convicted of rigging bids for contracts for investing proceeds of municipal bond sales.

After about two days of deliberations, jurors in New York today found Ghavami, Gary Heinz and Michael Welty guilty of wire fraud conspiracy for rigging bids from August 2001 to July 2002 and arranging to pay kickbacks to the brokerage firm CDR Financial Products Inc. in exchange for help in manipulating auctions.

Ghavami and Heinz were further found guilty of wire fraud in connection with making payments. Welty was found not guilty of wire fraud, and Heinz was found not guilty of one count of witness tampering.

The trial followed a five-year federal antitrust investigation into the $3.7 trillion municipal bond market. With today’s convictions, 19 of 20 people charged have been convicted or pleaded guilty to charges stemming from the probe, the government said. One is awaiting trial.

Zurich-based UBS, Bank of America Corp. (BAC:US) and other banks have paid more than $700 million to settle U.S. claims over the scheme.

“We’re disappointed with the verdict but we look forward to pressing ahead in this fight,” Charles Stillman, a lawyer for Ghavami, said after the verdict.

Marc Mukasey, a lawyer for Heinz, said, “We respect the verdict. We will continue to fight hard for Gary in the next stage of the process.”

Defense Attorneys

Lawyers for Welty, Preston Burton and Gregory L. Poe, declined to comment.

Sentencing dates haven’t been set for the three men. The most serious charge, conspiracy to commit wire fraud, carries a 30-year maximum sentence.

Issuers of tax-exempt municipal bonds must use competitive bidding when selecting firms to handle deals to invest the proceeds, according to the indictment in the case. Prosecutors alleged that the defendants skirted that requirement by colluding with competitors to set bid prices, often to deliberately lose the auctions.

Evidence included e-mails and 76 recordings of telephone conversations in which the defendants discussed bids, sometimes with individuals at competing firms just before deadlines for bid submissions.

Prosecution Witness

Mark Zaino, a former UBS employee who testified for the government under a cooperation agreement, told jurors that defendants sometimes solicited intentional losing bids and gave information to favored bidders to rig outcomes.

“A lot of people in this industry lost their moral compass,” Kalina Tulley, a Justice Department lawyer, said Aug. 28 in closing arguments.

Another cooperating government witness, former CDR employee Douglas Goldberg, testified that the UBS municipal derivatives group paid the broker 10 to 15 times in exchange for help with rigging bids.

Defense lawyers blamed the cooperating witnesses for much of the alleged illegal activity. Stillman described Ghavami as a “diligent, successful employee who carried out his work in good faith.”

Mukasey told jurors in that Zaino, who worked at CDR before jumping to UBS, was “operating behind everybody’s back” and “scamming the UBS desk.”

Discussions with competitors of bids in phone calls were examples of bluffing and other competitive tactics, Mukasey said.

‘Being Aggressive’

“Gary was being aggressive,” the defense lawyer said in his closing arguments. “Gary was following the rules. That’s good for competition.”

Three former General Electric Co. (GE:US) bankers, Dominick Carollo, Steven Goldberg and Peter Grimm, were found guilty in May in New York of conspiracy to commit fraud by manipulating actions for municipal bond investment deals.

In December, CDR and its founder, David Rubin, pleaded guilty less than a week before they were to be tried on bid- rigging charges.

UBS spokeswoman Karina Byrne said in an e-mailed statement that the bank “exited the municipal investment and derivatives business in 2008, and the conduct at issue concerns former employees’ activities.”

“UBS resolved our own issues concerning this former business with various regulators in May 2011,” she said.

Joseph Evangelisti, a JPMorgan Chase spokesman, didn’t return a call seeking comment about the verdict. Russell Wilkerson, a spokesman for GE Capital, declined to comment on the cases. A Bank of America spokesman, William Halldin, also declined to comment.

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

To contact the reporters on this story: Christie Smythe in New York at csmythe1@bloomberg.net; Patricia Hurtado in New York at pathurtado@bloomberg.net.

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


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