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Likely minor payout for MCC in UBS settlement

The Monroe Community College Association is one entity that will receive restitution from a settlement with UBS bank. Courtesy MCC

Last week, New York Attorney General Eric. T. Schneiderman announced that his office, along with numerous other state attorneys general, reached a $90.8 million settlement with Swiss bank UBS for fraudulent and anticompetitive conduct in connection with municipal bond derivatives.

The New York AG said entities nationwide used UBS brokers on municipal bond derivative agreements between 2001 and 2004.

The Monroe Community College Association is one of the entities entitled to restitution as a result of tax exempt bond proceeds given to UBS in 2002, but any amount received is likely to be minor. The bonds were issued to finance MCC residence halls.

“UBS told MCC, we’ll find you an investor but you have to go through a bidding process — and they didn’t,” said Michelle Duffy, press officer for the attorney general’s office in Albany. “The terms of the municipal derivative contract were not as good as they could have been in a more favorable market.”

Diane Cecero

MCC General Counsel Diane Cecero said that as in all class settlements, they will have to fill out a claim form and follow the claims process.

“I’m not holding my breath that the association is going to get a lot of money out of this,” Cicero said. “The fact that we were named was not indicative of it being a very large sum.”

“We don’t have a time frame yet for when they’ll get the money back but that should happen soon,” Duffy said.

In addition to MCC, other New York state entities affected by the alleged misconduct by UBS included the city of Niagara and the New York City Municipal Water Finance Authority. The investigation led by Schneiderman’s office and the Connecticut AG, began in 2008 with a review of the municipal bond derivative market.

Local and state governments, agencies, and school districts were among those affected by the alleged bid rigging by UBS employees who submitted noncompetitive courtesy bids and fraudulent certificates of arms-length bidding according to the New York AG. UBS will pay $63.3 million to a multistate restitution fund for governments and nonprofits pursuant to the agreement.

“Schemes that defraud our governments and nonprofits cheat the people those entities serve,” Schneiderman said in a statement. “We will not tolerate this type of misconduct at any level, especially as we work to restore public faith in our economic institutions.”

Investment research firm Zachs said that while the settlement may be a relief for UBS, the “penalty not only hampers the company’s financials but also its reputation.”

UBS is the second of several financial institutions involved in an ongoing municipal bond derivative investigation.
Bank of America entered into a similar allegation settlement resulting in a $137 million penalty in December.

The federal Securities and Exchange Commission, the Internal Revenue Service and the Department of Justice also reached a settlement with UBS AG as a result of the bid-rigging investigation for an additional $69.5 million.

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