SEC: RAISE WORTH THRESHOLD BEFORE CLIENTS CHARGED BY ADVISERS

The following announcement came from the SEC web site. In this announcement the SEC discusses proposed changes to how a threshold is determined before a financial adviser can charge a fee:

Washington, D.C., May 10, 2011 – The Securities and Exchange Commission today provided public notice of its plan to raise certain dollar thresholds that would need to be met before investment advisers can charge their clients performance fees. The SEC seeks public comment on the plan, which would satisfy a requirement of the Dodd-Frank Wall Street Reform and Consumer Protection Act.

Currently, Rule 205-3 under the Investment Advisers Act allows an adviser to charge its clients performance fees in certain circumstances. Two of the circumstances are:
The client has at least $750,000 under management with the adviser.
The adviser reasonably believes the client has a net worth of more than $1.5 million.
Section 418 of the Dodd-Frank Act requires the SEC to issue an order to adjust for inflation these dollar amount thresholds by July 21, 2011, and every five years thereafter. As a result, the SEC issued today’s notice that it intends to issue an order to revise the dollar amount tests to $1 million for assets under management and $2 million for net worth.
The Commission also proposed related amendments to Rule 205-3 that would:
Provide the method for calculating future inflation adjustments of the dollar amount tests.
Exclude the value of a person’s primary residence from the determination of whether a person meets the net worth standard.
Modify the transition provisions of the rule to take into account performance fee arrangements that were permissible at the time the adviser and client entered into their advisory contract.”

One important change noted above is the provision to exclude the value of a person’s primary residence when computing net worth. After the real estate collapse and current weakness in the real estate market, the determination of the value of a person’s home seems to be precarious. In many areas of the United States the value of homes is still falling with no end in sight.

BID RIGGING AT FORCLOSURE SALES: INVESTOR PLEADS GUILTY

Although this case involves real estate foreclosures and not securities fraud; the real estate market is directly connected to Wall Street as seen by the recent real estate market melt down which also affected all kinds of investors. The following case is an excerpt from the Department of Justice web site:

FRIDAY, MARCH 18, 2011

CALIFORNIA REAL ESTATE INVESTOR PLEADS GUILTY TO BID RIGGING
AT PUBLIC FORECLOSURE AUCTIONS
WASHINGTON — A real estate investor pleaded guilty today in U.S. District Court in Sacramento, Calif., to conspiring to rig bids and commit mail fraud at public real estate foreclosure auctions held in San Joaquin County, Calif., Christine Varney, Assistant Attorney General of the Department of Justice’s Antitrust Division, and Benjamin B. Wagner, U.S. Attorney for the Eastern District of California, announced.
Gregory L. Jackson pleaded guilty to conspiring with a group of real estate speculators who agreed not to bid against each other at certain public real estate foreclosure auctions in San Joaquin County. The primary purpose of the conspiracy was to suppress and restrain competition and to obtain selected real estate offered at San Joaquin County public foreclosure auctions at non-competitive prices, the department said in court papers.
According to the court documents, after the conspirators’ designated bidder bought a property at a public auction, they would hold a second, private auction, at which each participating conspirator would bid the amount above the public auction price he or she was willing to pay. The conspirator who bid the highest amount at the end of the private auction won the property. The difference between the price at the public auction and that at the second auction was the group’s illicit profit, and it was divided among the conspirators in payoffs. According to his plea agreement, Jackson participated in the scheme beginning in or about March 2009 until in or about October 2009.
To date, six individuals, including Jackson, have pleaded guilty in U.S. District Court for the Eastern District of California in connection with this investigation: Anthony B. Ghio, John R. Vanzetti, Theodore B. Hutz, Richard W. Northcutt and Yama Marifat.
“Today’s guilty plea demonstrates the Antitrust Division’s commitment to vigorously pursue and prosecute bid rigging conspiracies in real estate foreclosure auctions that harm competition,” said Assistant Attorney General Varney.
“Public auctions are designed to determine the fair market value in the housing market, and they play a pivotal role in protecting its integrity. These defendants manipulated the system for their own gain; their conduct was serious and prosecution is necessary,” said U.S. Attorney Wagner.
Jackson pleaded guilty to bid rigging, a violation of the Sherman Act, which carries a maximum penalty of 10 years in prison and a $1 million fine. The maximum fine may be increased to twice the gain derived from the crime or twice the loss suffered by the victims of the crime, if either of those amounts is greater than the statutory maximum fine. Jackson also pleaded guilty to conspiracy to commit mail fraud, which carries a maximum sentence of 30 years in prison and a $1 million fine.
These charges arose from an ongoing federal antitrust investigation of fraud and bidding irregularities in certain real estate auctions in San Joaquin County. The investigation is being conducted by the Antitrust Division’s San Francisco Office, the U.S. Attorney’s Office for the Eastern District of California, the FBI’s Sacramento Division and the San Joaquin County District Attorney’s Office. Trial attorneys Barbara Nelson and Tai Milder from the Antitrust Division’s San Francisco Office and Assistant U.S. Attorney Russell L. Carlberg are prosecuting the case.
Today’s plea is part of efforts underway by President Barack Obama’s Financial Fraud Enforcement Task Force. President Obama established the interagency Financial Fraud Enforcement Task Force to wage an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes. The task force includes representatives from a broad range of federal agencies, regulatory authorities, inspectors general and state and local law enforcement who, working together, bring to bear a powerful array of criminal and civil enforcement resources. The task force is working to improve efforts across the federal executive branch, and with state and local partners, to investigate and prosecute significant financial crimes, ensure just and effective punishment for those who perpetrate financial crimes, combat discrimination in the lending and financial markets, and recover proceeds for victims of financial crimes. One component of the task force is the national Mortgage Fraud Working Group, co-chaired by U.S. Attorney Wagner.”

It seems that President Obama's special task force investigating financial crimes did a good job in this case. Hopefully there will be many more prosecutions for finacial fraud.

SEC ASKS FOR COMMENT ON SHORT SALE TRANSACTIONS

The following was excerpted from the SEC web site. In it the SEC is asking for public commit on short sales:

“ Washington, D.C., May 4, 2011 – The Securities and Exchange Commission today published on its website a request for public comment on the feasibility, benefits, and costs of two short selling disclosure regimes as a part of a study mandated by the Dodd-Frank Wall Street Reform and Consumer Protection Act.

Section 417 of the Dodd-Frank Act directs the SEC’s Division of Risk, Strategy and Financial Innovation to study two short sale disclosure regimes. A transactions reporting regime would add short sale-related marks to the consolidated tape in a voluntary pilot program. A position reporting regime would entail real time reporting of investors’ short positions either to the public or to regulators only. The Commission is required to submit a report on the study to Congress by July 21, 2011.
To better inform the study, the request seeks public comment on both the existing uses of short selling in securities markets and the adequacy or inadequacy of the information regarding short sales available today. The request also seeks public comment on the likely effect of these possible future reporting regimes on the securities markets, including their feasibility, benefits, and costs.
The public comment period will remain open for 45 days following publication of the request in the Federal Register.”

UBS AGREES TO PAY $160 MILLION IN MUNICIPAL BOND FRAUD CASE

The following is an excerpt from the Department of Justice web site:

"WASHINGTON — UBS AG has entered into an agreement with the Department of Justice to resolve anticompetitive activity in the municipal bond investments market and has agreed to pay a total of $160 million in restitution, penalties and disgorgement to federal and state agencies, the Department of Justice announced today.

As part of its agreement with the department, UBS admits, acknowledges and accepts responsibility for illegal, anticompetitive conduct by its former employees. According to the non-prosecution agreement, from 2001 through 2006, certain former UBS employees at its municipal reinvestment and derivatives desk and related desks, entered into unlawful agreements to manipulate the bidding process and rig bids on municipal investment contracts. These contracts were used to invest the proceeds of, or manage the risks associated with, bond issuances by municipalities and other non-profit entities.

"UBS and its former executives engaged in illegal conduct that corrupted the competitive process and harmed municipalities, and ultimately taxpayers, nationwide," said Assistant Attorney General Christine Varney. "Today's agreements with UBS ensure that restitution is paid to the victims of the anticompetitive conduct, that UBS pays penalties and disgorges its ill-gotten gains. The Antitrust Division will continue to use every tool at our disposal to root out illegal activity in financial markets that disrupts the competitive process."

Under the terms of the agreement, UBS agrees to pay restitution to victims of the anticompetitive conduct and to cooperate fully with the Justice Department's Antitrust Division in its ongoing investigation into anticompetitive conduct in the municipal bond derivatives industry. To date, the ongoing investigation has resulted in criminal charges against 18 former executives of various financial services companies and one corporation. Four of these charged executives are former UBS employees: Mark Zaino, Peter Ghavami, Gary Heinz and Michael Welty. Nine of the 18 executives charged have pleaded guilty, including Mark Zaino.

The Securities and Exchange Commission (SEC), the Internal Revenue Service (IRS) and 25 state attorneys general also entered into agreements with UBS requiring the payment of penalties, disgorgement of profits from the illegal conduct and payment of full restitution to the victims harmed by the manipulation and bid rigging by UBS employees.

As a result of UBS's admission of conduct; its cooperation with the Department of Justice and the SEC, the IRS and the state attorneys general; its monetary and non-monetary commitments to the SEC, IRS and state attorneys general; and its remedial efforts to address the anticompetitive conduct, the department agreed not to prosecute UBS for the manipulation and bid rigging of municipal investment contracts, provided that UBS satisfies its ongoing obligations under the agreement.

In December 2010, Bank of America agreed to pay a total of $137.3 million in restitution to federal and state agencies for its participation in anticompetitive conduct in the municipal bond derivatives market.

The department's ongoing investigation into the municipal bonds industry is being conducted by the Antitrust Division, the FBI and the IRS Criminal Investigation. The department is coordinating its investigation with the SEC, the Office of the Comptroller of the Currency (OCC) and the Federal Reserve Bank of New York.

The Antitrust Division, SEC, IRS, FBI, state attorneys general, OCC and Federal Reserve Bank are members of the Financial Fraud Enforcement Task Force. President Obama established the interagency task force to wage an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes. The task force includes representatives from a broad range of federal agencies, regulatory authorities, inspectors general and state and local law enforcement who, working together, bring to bear a powerful array of criminal and civil enforcement resources. The task force is working to improve efforts across the federal executive branch, and with state and local partners, to investigate and prosecute significant financial crimes, ensure just and effective punishment for those who perpetrate financial crimes, combat discrimination in the lending and financial markets, and recover proceeds for victims of financial crimes. For more information about the task force, visit www.stopfraud.gov."

SEC PROPOSES DEFINITIONS REGARDING SWAPS

The need for clarity is important if our financial system is to survive. It is the role of government to make such rules that everyone involved can understand. During the past several years definitions of all types of new securities were blurred by those who were either ignorant or more probably, trying to confuse both governmental oversight agencies and the general public. Terms like “Swap” and "insurance" were often mixed or mismatched. The following excerpt is from the SEC web site and it is intended to clarify definitions regarding swaps:

“ Washington, D.C., April 27, 2011 — The Securities and Exchange Commission today voted unanimously to propose rules further defining the terms “swap,” “security-based swap,” and “security-based swap agreement.”
The Commission also proposed rules regarding “mixed swaps” and books and records for “security-based swap agreements.”
The rules were proposed jointly with the Commodity Futures Trading Commission (CFTC) and stem from the Dodd-Frank Wall Street Reform and Consumer Protection Act.
“The proposed definitions balance several policy and legal issues in a way I believe is practical, takes into account the specific nature of derivatives contracts, and is consistent with existing securities regulations,” said SEC Chairman Mary L. Schapiro. “The proposal seeks to provide guidance in rules and interpretations by using clear and objective criteria that should clarify whether a particular instrument is a swap regulated by the CFTC, a security-based swap regulated by the SEC, or a mixed swap regulated by both agencies.”
Public comments on the rule proposal should be received within 60 days after it is published in the Federal Register.
The SEC still has several more rules it must propose under Title VII of the Dodd-Frank Act and continues to welcome comments on those rulemakings that have already been proposed. When all of those rulemaking proposals have been completed, the SEC will consider what additional opportunity for public comment would be appropriate for its Dodd-Frank Act Title VII rules.
# # #
FACT SHEET
Proposals to Further Define Terms in Title VII of the Dodd-Frank Act
Background
The Dodd-Frank Act established a comprehensive framework for regulating the over-the-counter swaps markets. In particular, the Act provides that the SEC will regulate “security-based swaps,” the CFTC will regulate other “swaps,” and the CFTC and the SEC will jointly regulate “mixed swaps.”
Title VII of the Dodd-Frank Act requires that both the SEC and CFTC, in consultation with the Board of Governors of the Federal Reserve System, shall jointly further define the terms “swap,” “security-based swap,” and “security-based swap agreement.” Title VII further provides that the SEC and CFTC shall jointly establish such regulations regarding “mixed swaps” as may be necessary to carry out the purposes of swap and security-based swap regulation under Title VII.
In addition, Title VII requires the SEC and CFTC to jointly adopt rules governing the way in which books and records must be kept for security-based swap agreements. These rules would apply to those entities registered as swap data repositories under the Commodity Exchange Act or registered as swap dealers, major swap participants, security-based swap dealers, and major security-based swap participants.
The Proposal
The joint proposal of the SEC and the CFTC would add rules under the Securities Exchange Act of 1934 and provide interpretive guidance regarding which products would – and would not – be considered a “swap” or a “security-based swap” (referred to collectively in the proposing release as “Title VII instruments”).
Products That Are Not “Swaps” or “Security-Based Swaps”
Insurance: Under the proposed rule and interpretive guidance, insurance products would not be considered swaps or security-based swaps. To be considered insurance, the rules would require that both the product as well as the person or entity providing the product must meet certain criteria. The interpretive guidance would provide that certain types of products must be provided by a person or entity that meets certain criteria in order to be considered insurance.
Among other things, the beneficiary of the insurance product must have an insurable interest and thereby bear the risk of loss with respect to that interest continuously throughout the duration of the agreement, contract, or transaction.
Additionally:
The loss must occur and be proved.
Any payment or indemnification for loss must be limited to the value of the insurable interest.
The agreement, contract or transaction must not be traded, separately from the insured interest, on an organized market or over-the-counter.
With respect to financial guaranty insurance only, in the event of a payment default or insolvency of the obligor, any acceleration of payments under the policy must be at the sole discretion of the insurer.
A person or entity providing the insurance product must be one of the following:
An insurance company whose primary and predominant business activity is insuring or reinsuring risks underwritten by insurance companies, subject to supervision by a state or federal insurance commissioner.
The United States or any of its agencies or instrumentalities.
In the case of reinsurance, a person located outside the United States providing the agreement, contract or transaction to an insurance company eligible under the proposed rules, provided that:

Such person is not otherwise prohibited by law from offering the agreement, contract, or transaction to such an insurance company.
The product to be reinsured meets the requirements under the proposed rules to be an insurance product.
The total amount reimbursable by all reinsurers for such insurance product cannot exceed the claims or losses paid by the cedant.
In some cases, under the proposed interpretive guidance, certain types of products that may not meet the proposed criteria would still be considered insurance, and not swaps or security-based swaps, if those products are offered by a regulated insurance company. These products include surety bonds, life insurance, health insurance, long-term care insurance, title insurance, property and casualty insurance, and annuity products the income on which is subject to tax treatment under Section 72 of the Internal Revenue Code.
Security forwards: The SEC proposed interpretive guidance clarifying that security forwards fall outside the definitions of swap and security-based swap. This includes the treatment of mortgage backed securities that are eligible to be sold in the “to-be-announced” or “TBA” market.
Consumer and Commercial Transactions: The SEC also proposed interpretive guidance describing the way in which certain consumer and commercial transactions fall outside the definitions of swap and security-based swap.
Consumer Transactions
Under the proposed interpretive guidance, certain agreements, contracts or transactions entered into by consumers primarily for personal, family or household purposes should not be considered swaps or security-based swaps.
They include agreements, contracts or transactions:
To acquire or lease real or personal property, to obtain a mortgage, to provide personal services, or to sell or assign rights owned by such consumer (such as intellectual property rights).
That provide for an interest rate cap or lock on a consumer loan or mortgage, where the benefit of the rate cap or lock is realized by the consumer only if the loan or mortgage is made thereto.
They also include consumer loans or mortgages with variable rates of interest, including such loans with provisions for the rates to change upon certain events related to the consumer, such as a higher rate of interest following a default.
Commercial Transactions
Under the proposed interpretive guidance, commercial agreements, contracts, or transactions that involve customary business or commercial arrangements (whether or not involving a for-profit entity) would not be considered swaps or security-based swaps.
They include:
Employment contracts and retirement benefit arrangements.
Sales, servicing, or distribution arrangements.
Agreements, contracts, or transactions for the purpose of effecting a business combination transaction.
The purchase, sale, lease, or transfer of real property, intellectual property, equipment, or inventory.
Warehouse lending arrangements in connection with building an inventory of assets in anticipation of a securitization of such assets (such as in a securitization of mortgages, student loans, or receivables).
Mortgage or mortgage purchase commitments, or sales of installment loan agreements or contracts or receivables.
Fixed or variable interest rate commercial loans entered into by non-banks.
Commercial agreements, contracts, and transactions (including, but not limited to, leases, service contracts, and employment agreements) containing escalation clauses linked to an underlying commodity such as an interest rate or consumer price index.
The consumer and commercial transactions listed in the proposed guidance are not an exhaustive list of transactions that should not be considered swaps or security-based swaps. The proposed guidance provides for certain factors the Commissions will consider in determining whether consumer and commercial transactions that are not listed are swaps or security-based swaps.
Transactions That Are “Swaps” or Security-Based Swaps”
The SEC proposed a rule and interpretive guidance that the following transactions fall within the definition of swap or security-based swap: foreign exchange forwards, foreign exchange swaps, foreign currency options (other than foreign currency options traded on a national securities exchange), non-deliverable forward contracts involving foreign exchange, currency and cross-currency swaps, forward rate agreements, contracts for differences, and certain combinations and permutations of (or options on) swaps and security-based swaps.
In its proposed interpretive guidance, the SEC would clarify whether particular agreements, contracts or transactions are swaps, security-based swaps, or mixed swaps. Among other things, the proposed guidance would provide that such a determination is to be made at the inception of the Title VII instrument and that such a characterization would remain throughout the life of the instrument unless the instrument is amended or modified.
Interest Rates, Other Monetary Rates and Yields: Under the proposed interpretive guidance, Title VII instruments on interest rates and other monetary rates would be swaps. And, Title VII instruments on “yields” – where “yield” is a proxy for the price or value of a debt security, loan, or narrow-based security index – would be security-based swaps, except in the case of certain exempted securities.
Meanwhile, Title VII instruments on rates or yields of U.S. Treasuries and certain other exempted securities (other than municipal securities) would be swaps and not security-based swaps.
Total Return Swaps: Under the proposed interpretive guidance, a Total Return Swap, or TRS, on a single security, loan, or narrow-based security index generally would be a security-based swap. Where counterparties embed interest-rate optionality or a non-securities component into the TRS (e.g., the price of oil, a currency hedge), it would be a mixed swap.
Title VII Instruments Based on Futures: Under the proposed interpretive guidance, Title VII instruments on futures (other than futures on foreign government debt securities) would generally be swaps and Title VII instruments on security futures would generally be security-based swaps.
Swaps and Security-Based Swaps Based on Security Indexes
The SEC proposed rules and interpretive guidance regarding the applicability of the “narrow-based security index” definition to certain products, including proposed rules regarding the definition of “narrow-based security index” and “issuers of securities in a narrow-based security index” for index credit default swaps (index CDS).
The SEC also proposed rules and interpretive guidance regarding the definition of a security index and the evaluation of Title VII instruments based on security indexes that migrate from broad-based to narrow-based and vice versa.
The SEC proposed rules and interpretive guidance regarding the term “narrow-based security index” in the security-based swap definition, including:
The existing criteria for determining whether a security index is a narrow-based security index and the applicability of past guidance of the SEC and CFTC regarding those criteria to Title VII instruments.
New criteria for determining whether an index CDS where the underlying reference is a group or index of entities or obligations of entities is based on an index that is a narrow-based security index.
The meaning of the term “index.”

A rule governing the tolerance period for Title VII instruments on security indexes traded on designated contract markets (DCMs), swap execution facilities (SEFs), foreign boards of trade (FBOTs), security-based SEFs, or national securities exchanges (NSEs), where the security index temporarily moves from broad-based to narrow-based or from narrow-based to broad-based.
A rule governing the grace period for Title VII instruments on security indexes traded on DCMs, SEFs, FBOTs, security-based SEFs, or NSEs, where the security index moves from broad-based to narrow-based or from narrow-based to broad-based and the move is not temporary.
If a broad-based index CDS requires mandatory physical settlement, it would be a mixed swap.
If a broad-based index CDS requires cash settlement or auction settlement, it would be a swap, and would not be considered a security-based swap or a mixed swap solely because the determination of the cash price to be paid is established through a security or loan auction.
Mixed Swaps
The SEC proposed interpretive guidance regarding the scope of the mixed swap category, which both the SEC and CFTC believe to be narrow.
The SEC also proposed rules and interpretive guidance that mixed swaps would remain subject to the entirety of the SEC and CFTC regulatory regimes, but that for bilateral uncleared mixed swaps entered into by at least one dually-regulated swap and security-based swap dealer or major swap and security-based swap participant, certain regulatory requirements would apply.
In addition, the SEC proposed a rule establishing a process, for all other mixed swaps, by which persons may request modified regulatory treatment by joint order of the SEC and CFTC.
Security-Based Swap Agreements
The SEC proposed interpretative guidance regarding certain products that are security-based swap agreements (SBSA). It also proposed a rule requiring market participants to maintain the same books and records for security-based swap agreements as they would under the CFTC’s proposed books and records requirements for swaps.
Interpretation of the Characterization of a Product
The SEC proposed a rule establishing a process that would allow market participants or either the SEC or CFTC to request a determination from the SEC and CFTC of whether a product is a swap, security-based swap, or both (i.e., a mixed swap).”

SEC CHARGES UBS FINANCIAL SERVICES INC. WITH FRAUD

Whenever there are large sums of money involved financial companies will seem to always find a way to rig financial markets to the detriment of investors, tax payers and, customers. The case below is from the SEC web site. In this case the SEC alleges that UBS Financial Services Inc., committed fraud by bid-rigging in the municipal bond market:

“ Washington, D.C., May 4, 2011 — The Securities and Exchange Commission today charged UBS Financial Services Inc. (UBS) with fraudulently rigging at least 100 municipal bond reinvestment transactions in 36 states and generating millions of dollars in ill-gotten gains.

To settle the SEC’s charges, UBS has agreed to pay $47.2 million that will be returned to the affected municipalities. UBS and its affiliates also agreed to pay $113 million to settle parallel cases brought by other federal and state authorities.
When investors purchase municipal securities, the municipalities generally temporarily invest the proceeds of the sales in reinvestment products before the money is used for the intended purposes. Under relevant IRS regulations, the proceeds of tax-exempt municipal securities must generally be invested at fair market value. The most common way of establishing fair market value is through a competitive bidding process in which bidding agents search for the appropriate investment vehicle for a municipality.
The SEC alleges that during the 2000 to 2004 time period, UBS’s fraudulent practices and misrepresentations undermined the competitive bidding process and affected the prices that municipalities paid for the reinvestment products being bid on by the provider of the products. Its fraudulent conduct at the time also jeopardized the tax-exempt status of billions of dollars in municipal securities because the supposed competitive bidding process that establishes the fair market value of the investment was corrupted. The business unit involved in the misconduct closed in 2008 and its employees are no longer with the company.
According to the SEC’s complaint filed in U.S. District Court for the District of New Jersey, UBS played various roles in these tainted transactions. UBS illicitly won bids as a provider of reinvestment products, and also rigged bids for the benefit of other providers while acting as a bidding agent on behalf of municipalities. UBS at times additionally facilitated the payment of improper undisclosed amounts to other bidding agents. In each instance, UBS made fraudulent misrepresentations or omissions, thereby deceiving municipalities and their agents.
“Our complaint against UBS reads like a ‘how-to’ primer for bid-rigging and securities fraud,” said Elaine C. Greenberg, Chief of the SEC’s Municipal Securities and Public Pensions Unit. “They used secret arrangements and multiple roles to win business and defraud municipalities through the repeated use of illegal courtesy bids, last looks for favored bidders, and money to bidding agents disguised as swap payments.”
According to the SEC’s complaint, UBS as a bidding agent steered business through a variety of mechanisms to favored bidders acting as providers of reinvestment products. In some cases, UBS gave a favored provider information on competing bids in a practice known as “last looks.” In other instances, UBS deliberately obtained off-market ”courtesy” bids or arranged “set-ups” by obtaining purposefully non-competitive bids from others so that the favored provider would win the business. UBS also transmitted improper, undisclosed payments to favored bidding agents through interest rate swaps. In addition, UBS was favored to win bids with last looks and set-ups as a provider of reinvestment products.
In a related enforcement action, the SEC barred former UBS officer Mark Zaino from associating with any broker, dealer or investment adviser, based upon his guilty plea last year in a criminal case charging him with two counts of conspiracy and one count of wire fraud for engaging in misconduct in the competitive bidding process involving the investment of proceeds of tax-exempt municipal bonds. The Commission recognizes Zaino’s cooperation in the SEC’s investigation as well as investigations conducted by other law enforcement agencies.
Without admitting or denying the allegations in the SEC’s complaint, UBS has consented to the entry of a final judgment enjoining it from future violations of Section 15(c) of the Securities Exchange Act of 1934. UBS has agreed to pay a penalty of $32.5 million and disgorgement of $9,606,543 with prejudgment interest of $5,100,637. The settlement is subject to court approval.
This is the SEC’s second settlement with a major bank in an ongoing investigation into corruption in the municipal reinvestment industry. In December 2010, the SEC charged Banc of America Securities LLC (BAS) with securities fraud for similar conduct. In that matter, BAS agreed to pay more than $36 million in disgorgement and interest to settle the SEC’s charges, and paid an additional $101 million to other federal and state authorities for its misconduct.
The SEC thanks the Antitrust Division of the Department of Justice and the Federal Bureau of Investigation for their cooperation and assistance in this matter. The SEC is bringing this enforcement action in coordination with the Department of Justice, Internal Revenue Service and 25 State Attorneys General.
The SEC’s investigation is continuing.”

The SEC seems to be very aggressive in it’s prosecution of bad guys. However, perhaps instead of levying a relatively small fine against these large institutions the SEC should be allowed to confiscate all of the shareholder and bond holder equity in these businesses. Fines seem to be having no deterrent value so perhaps only the complete loss of equity will get share holders and bond holders in these financial institutions to pay attention to what executives are doing in the name of the owners and chief creditors.