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CONVICTED: UBS Execs Go Down For Muni Bond Fraud

All hail Eric Holder, Covington & Burling, et al.


Three UBS Execs Convicted in Bid-Rigging Muni Bond Fraud

Before you read the 'crime fighters' press release from the criminal-defense division of Covington & Burling below, check out this Dealbook analysis of the UBS convictions and how they relate to potential Libor criminal cases.


Department of Justice

WASHINGTON – A federal jury in New York City today convicted three former financial services executives for their participation in frauds related to bidding for contracts for the investment of municipal bond proceeds and other municipal finance contracts , the Department of Justice announced.

Peter Ghavami, Gary Heinz and Michael Welty, all former UBS AG executives, were found guilty on conspiracy and fraud charges in the U.S. District Court in New York City. Ghavami was found guilty on two counts of conspiracy to commit wire fraud and one count of substantive wire fraud. Heinz was found guilty on three counts of conspiracy to commit wire fraud and two counts of substantive wire fraud. Welty was found guilty on three counts of conspiracy to commit wire fraud. Heinz was found not guilty on one count of witness tampering and Welty was found not guilty on one count of substantive wire fraud.

The trial began on July 30, 2012.

Ghavami, Heinz and Welty were initially indicted on Dec. 9, 2010.

“For years, these executives corrupted the competitive bidding process and defrauded municipalities across the country out of money for important public works projects,” said Scott D. Hammond, Deputy Assistant Attorney General of the Antitrust Division’s criminal enforcement program. “Today’s convictions demonstrate that the division is committed to holding accountable those who seek to unfairly and illegally undermine competitive markets.”

According to evidence presented at trial, while employed at UBS, Ghavami, Heinz and Welty participated in separate fraud conspiracies and schemes with various financial institutions and with a broker, at various time periods from as early as March 2001 until at least November 2006. These financial institutions, or providers, offered a type of contract—known as an investment agreement— to state, county and local governments and agencies, and not-for-profit entities, throughout the United States. The public entities were seeking to invest money from a variety of sources, primarily the proceeds of municipal bonds that they had issued to raise money for, among other things, public projects. Public entities typically hire a broker to assist them in investing their money and to conduct a competitive bidding process to determine the winning provider.

According to evidence presented at trial, while acting as providers, Ghavami, Heinz and Welty, with their provider and broker co-conspirators, corrupted the bidding process for more than a dozen investment agreements to increase the number and profitability of the agreements awarded to UBS.  At other times, while acting as brokers, Ghavami, Heinz, Welty and their co-conspirators arranged for UBS to receive kickbacks in exchange for manipulating the bidding process and steering investment agreements to certain providers.

Ghavami, Heinz and Welty deprived the municipalities of competitive interest rates for the investment of tax-exempt bond proceeds that were to be used by municipalities to refinance outstanding debt and for various public works projects, such as for building or repairing schools, hospitals and roads.  Evidence at trial established that they cost municipalities around the country and the U.S. Treasury millions of dollars.

 During the trial, the government presented specific evidence relating to approximately 26 corrupted bids and approximately 76 recorded conversations made by the co-conspirator financial institutions. Among the issuers and not-for-profit entities whose agreements or contracts were subject to the defendants' schemes were the Commonwealth of Massachusetts, the New Mexico Educational Assistance Foundation, the Tobacco Settlement Financing Corporation of Rhode Island and the RWJ Health Care Corp at Hamilton.

“Corrupt bidding schemes serve to weaken the public’s trust in the municipal bond market and prevent public entities from enjoying the benefits of a true competitive bidding process,” said Mary E. Galligan, Acting Assistant Director in Charge of the FBI in New York. “Today’s conviction is further proof of our efforts to weed out these corrupt criminals and ensure justice is served.”

“Today's verdict is important because it confirms that these complex, seemingly uninteresting backroom deals have a real impact on taxpayers, who should benefit from a municipal bond issue and are ultimately responsible for paying it off,” said Richard Weber, Chief, Internal Revenue Service-Criminal Investigation (IRS-CI). “Today’s convictions send a strong message to the municipal bond industry and demonstrates the commitment of the Internal Revenue Service and the Justice Department to rid the industry of corrupt practices.

A total of 20 individuals have been charged as a result of the department’s ongoing municipal bonds investigation. Including today’s convictions, a total of 19 individuals have been convicted or pleaded guilty, and one awaits trial.  Additionally, one company has pleaded guilty.

Two of charged fraud conspiracies carry a maximum penalty per count of 30 years in prison and a $1 million fine.  A third fraud conspiracy charge carries a maximum penalty of five years in prison and a $250,000 fine.  The two wire fraud charges carry a maximum penalty per count of 30 years in prison and a $1 million fine.

These maximum fines per count may be increased to twice the gain derived from the crime or twice the loss suffered by the victims of the crime, if either amount is greater than the statutory maximum fine.

The verdict announced today resulted from an ongoing investigation conducted by the Antitrust Division’s New York and Chicago Offices, the FBI and the IRS-CI. The division is coordinating its investigation with the U.S. Securities and Exchange Commission, the Office of the Comptroller of the Currency and the Federal Reserve Bank of New York.

Today’s convictions are part of efforts underway by President Obama’s Financial Fraud Enforcement Task Force (FFETF) which was created in November 2009 to wage an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes. With more than 20 federal agencies, 94 U.S. Attorneys’ offices and state and local partners, it’s the broadest coalition of law enforcement, investigatory and regulatory agencies ever assembled to combat fraud. Since its formation, the task force has made great strides in facilitating increased investigation and prosecution of financial crimes; enhancing coordination and cooperation among federal, state and local authorities; addressing discrimination in the lending and financial markets and conducting outreach to the public, victims, financial institutions and other organizations. Over the past three fiscal years, the Justice Department has filed more than 10,000 financial fraud cases against nearly 15,000 defendants including more than 2,700 mortgage fraud defendants. For more information on the task force, visit www.stopfraud.gov.

Anyone with information concerning bid rigging and related offenses in any financial markets should contact the Antitrust Division’s New York Field Office at 212-335-8000, the FBI at 212-384-5000 or IRS-CI at 212-436-1761, or visit http://www.justice.gov/atr/contact/newcase.html


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Reader Comments (13)

Sep 7, 2012 at 2:53 PM | Registered CommenterDailyBail
Sep 7, 2012 at 2:54 PM | Registered CommenterDailyBail
DB, I visited the stop fraud web site and I must confess to being somewhat stupified by the stuff posted there. I guess they are crowing from the roof tops of all their wonderful deeds. But alas they amount to not much in my humble opinion.
Sep 7, 2012 at 9:32 PM | Unregistered CommenterSKINFLINT
"Ghavami, Heinz and Welty participated in separate fraud conspiracies and schemes with various financial institutions and with a broker, at various time periods from as early as MARCH 2001 UNTIL AT LEAST NOVEMBER 2006."

In other words, the DOJ will continue its refusal to investigate the criminal bankers (and campaign donors) whose fraud caused the financial crisis, but to maintain appearances will also conduct show trials involving pikers like the 3 stooges at issue here.
Sep 7, 2012 at 11:12 PM | Unregistered CommenterCheyenne
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Sep 7, 2012 at 11:25 PM | Unregistered CommenterLiberatedCitizen
Now go after every single current and former employee of Goldman Sachs, every one should spend the rest of their lives in prison.
Sep 8, 2012 at 2:54 AM | Unregistered CommenterDave Mowers
Here's another legal matter for the Kabuki Theater file--"S.E.C. Charges [Irrelevant Small Fry] of Misleading Investors"


And what exactly is the "misleading" financial product at issue? One that would “generate inflation-adjusted income for life.”

If the S.E.C. feels it can prove up violations of that hopelessly vague allegation, then surely it can also prove that mortgage-backed securities that aren't backed by any mortgages whatsoever were also misleading. I mean, how hard is it to prove that the box that was supposedly chock full of AAA mortgages was in fact empty? Easier yet, how hard is it to prove that it was wrong to sell the same mortgage over and over and over again?

And yet the S.E.C. takes a pass on the latter pair of slam-dunk cases so it can instead launch a half-court jumper on "inflation-adjusted" products--whatever the fuck that means.

So what's behind the S.E.C.'s failure to go after mortgage-backed products which at a glance are not mortgage-backed? Well, you see, the sellers went by the names of Goldman Sachs and J.P. Morgan (nee Bear Stearns).

And that right there everything you need to know about the American justice system: the merits of a case don't matter one whit; it's all about who you are.
Sep 8, 2012 at 1:21 PM | Unregistered CommenterCheyenne
Cheyenne, what was your point about the dates you put in bold above?
Sep 8, 2012 at 3:15 PM | Unregistered CommenterPitchfork

The dates indicate (along with the subject matter) that authorities have not and will not investigate the causes of the financial crisis. To the extent that events between 2001 and 2006 did contribute to the meltdown, you'll notice that the 5-year statute of limitations typically associated with criminal fraud has run.
Sep 8, 2012 at 3:22 PM | Unregistered CommenterCheyenne
OK, got it. I thought you meant something along those lines, but wasn't sure. The initial indictment was 2010. It almost makes you think they were trying to miss the deadline for financial crisis crimes...
Sep 8, 2012 at 4:14 PM | Unregistered CommenterPitchfork
Yves and others have certainly suggested as much, namely, that corrupt assholes like Placeholder are simply running out the statutes of limitations for fraud, the clock on which begins to tick as soon as the fraud was discovered or reasonably should have been discovered. For MBS trusts that have no promissory notes in them at all, the statute of limitations would pretty much start running on the date of the sale. Thus, pretty much all indictments for that particular outrage have been more or less voluntarily waived by the DOJ for MBS sales before 9/07. You can bet your ass that Placeholder will get a fat reward for that criminal lapse.

There is no statute of limitations for fraud on the court, however. Nor is there one for treason (which has the added attraction of carrying the death penalty). Thus, it's just a matter of waiting for a prosecutor with a sense of justice and a set of balls to show up and usher all these assholes into prison. But the corruption has soaked the threadbare moral fabric of our political leaders so thoroughly that I'm not holding my breath. Pitchforks and torches--not to mention a whole lotta rope--are almost guaranteed to precede indictments...
Sep 8, 2012 at 4:41 PM | Unregistered CommenterCheyenne
Cheyenne, that second paragraph made me laugh out loud. Thanks, for that.
Sep 8, 2012 at 6:44 PM | Unregistered CommenterPitchfork

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