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Koster announces $90.8M settlement with Swiss Bank

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Missouri Attorney General Chris Koster announced May 4 that Swiss bank UBS AG will pay $90.8 million as part of a coordinated federal and state enforcement agency settlement for anticompetitive and fraudulent activity in municipal bond derivative transactions.

Municipal bond derivatives are contracts that tax-exempt issuers use to reinvest the proceeds of bond offerings until the funds are needed or to hedge interest rate risks, according to a news release from Koster’s office. In 2008, a group of states began investigating allegations that certain large financial institutions, including national banks and insurance providers, and some brokers and swap advisers, engaged in schemes to rig bids and commit deceptive, unfair and fraudulent conduct in the municipal bond derivatives market.

The investigation brought to light deceptive conduct, such as bid rigging, submission of noncompetitive courtesy bids, and submissions to government agencies and other entities of fraudulent certifications of compliance with U.S. Treasury regulations.

Of the total settlement amount, $63.3 million will go into a multistate restitution fund for entities that entered into municipal derivatives contracts with UBS or used the bank as a broker on such deals between 2001 and 2004, according to the release.

The agreement also mandates that UBS will pay $2.5 million to the states in penalties, $5 million in fees and costs for the investigation, and $20 million directly to other governments and nonprofits as part of its resolution with the Securities and Exchange Commission.

The state settlement with UBS is part of coordinated law enforcement and regulatory settlements that UBS entered into with the U.S. Department of Justice’s Antitrust division, the SEC and the Internal Revenue Service. UBS is the second financial institution to settle with the 25-state working group in an ongoing municipal bond derivatives investigation.

“This settlement is part of our ongoing effort to return taxpayer money to those whom it was intended to benefit – the state agencies, municipalities, school districts and not-for-profit entities that purchased the derivatives, rather than the providers and brokers who engaged in this illegal scheme,” Koster said in the release.[[In-content Ad]]

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