States settle with USB

Nick Rees May 4, 2011, 3:16am


AUSTIN, Texas (Legal Newsline) - Twenty-five states attorney general have reached a settlement with Switzerland-based USB AG over antitrust allegations.

Under the terms of the multistate settlement agreement, UBS agreed to pay $90.8 million and provide restitution to state and local governments allegedly affected by UBS' anticompetitive conduct.

The multistage settlement resolves allegations that UBS was engaged in unlawful bid-rigging and price fixing as part of the municipal bond derivative market. Municipal bond derivatives are the instruments used by government bond issuers to reinvest their bond proceeds until they are needed to fund local projects. Derivatives are also used to aid issuers in hedging interest rate risk on their bonds.

Several states began looking into the practices of UBS and other financial institutions in 2008, focusing on the sale of municipal bond derivatives. The states alleged that officials at UBS had improperly colluded with other financial institutions in setting the price of municipal bond derivatives.

Financial institutions and brokers allegedly advanced their bid-rigging scheme by allowing "last looks," submitting non-competitive courtesy bids and reporting fraudulent certifications of arms-length bidding.

The allegedly collusive actions were meant to increase profits for financial institutions and/or the broker at the expense of bond issuers and, ultimately, taxpayers. State, local and not-for-profit entities allegedly ended up paying higher interest rates and earning lower rates of return on their investment as a result of the alleged collusion.

This allegedly resulted in government entities and nonprofits enduring artificially increased debt or suffering artificially suppressed earnings.

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