UBS, the big Swiss bank, reaped millions of dollars of illegal profits by rigging at least 100 municipal bond transactions in 36 states, the government said Wednesday.
In a settlement, UBS agreed to pay $160 million.
The case was part of an ongoing federal probe of manipulation in the market where municipalities borrow money to finance debts and pay for projects such as schools, roads and hospitals.
Instead of helping municipalities get the best deals, the federal authorities charged, UBS was cheating them.
Under an agreement with the Justice Department, UBS “admits, acknowledges and accepts responsibility for illegal, anticompetitive conduct” by former employees, the department said.
Four former UBS executives were previously charged, and one has pleaded guilty.
In December, Bank of America settled a similar case by agreeing to pay $137 million.
UBS’s offenses occurred from 2001 through 2006, the Justice Department said.
In a statement, the bank said it cooperated fully with the investigation and that it has exited the business in question.
“UBS does not endorse, ratify or condone anticompetitive activity or other violations of law,” the bank said.
In a past enforcement case, which UBS also settled, the government accused it of helping Americans hide money from the IRS in Swiss bank accounts.
After issuing tax-exempt bonds, municipalities ordinarily invest the proceeds until they are ready to spend. UBS was involved in the process by which they selected temporary investments.
It was supposed to involve arms-length competition, but UBS used techniques to rig the bidding and extract large profit margins, the government alleged.
In some cases, UBS gave favored bidders information on competing bids. In other cases, it arranged for certain parties to make purposefully losing bids to help other parties win.
When a firm identified only as “Provider B” was upset that another, called “Provider A,” had won a transaction, UBS promised to favor Provider B in a later transaction, the SEC said. Provider A allegedly helped by submitting a low-ball bid and reducing it further when UBS complained that it was too high, the SEC said.
Although the municipal bond market may be perceived as one of the more staid segments of the financial world, the SEC has been concerned that it can put investors at a disadvantage.
“Significantly, despite its size and obvious importance, today investors in the municipal securities market still lack many of the protections they have in other sectors of the U.S. capital markets,” Elisse B. Walter, one of five SEC commissioners, said in a speech Wednesday. “That is not a satisfactory state of affairs.”
The law enacted last year to tighten regulation of the financial markets called for the SEC to establish an office focused on municipal securities, but the SEC has said creation of the office has been delayed by lack of funding.