Tuesday, September 4, 2012

Three Former UBS Executives Convicted for Frauds Involving Contracts Related to the Investment of Municipal Bond Proceeds

U.S. Department of Justice August 31, 2012
  • Office of Public Affairs (202) 514-2007/TDD (202)514-1888

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 December 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.”

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