July 30 (Bloomberg) -- Peter Ghavami, former co-head of UBS AG’s municipal-derivatives group, goes on trial today with two ex-colleagues in a bond bid-rigging probe in which banks have paid more than $700 million to settle U.S. claims.
Ghavami, Gary Heinz and Michael Welty are charged in a six- count indictment with “long-running conspiracies and schemes to defraud” municipal-bond issuers and U.S. tax authorities by fixing prices on agreements for investing the proceeds of municipal-bond sales.
The trial, in front of U.S. District Judge Kimba Wood in Manhattan, is the result of a nationwide probe of bid-rigging involving banks and brokers including CDR Financial Products Inc.
Prosecutors expect to prove “the knowing and active participation” of UBS, JPMorgan Chase & Co., Bank of America Corp. and General Electric Co. in the fraud alleged against the three former UBS executives, according to a July 6 court filing.
Bank of America, JPMorgan Chase, UBS, Wells Fargo & Co. and GE Funding Capital Market Services, a former unit, have paid more than $700 million to settle claims by the government. Beverly Hills, California-based CDR and 13 individuals have pleaded guilty to criminal charges.
In May, three former GE bankers, Dominick Carollo, Steven Goldberg and Peter Grimm, were found guilty by a federal jury in Manhattan of conspiracy to commit fraud by manipulating auctions for municipal-bond investment contracts. The government claimed that from August 1999 to November 2006 the men gave kickbacks to brokers hired by local governments to solicit bids, seeking to win auctions and increase their profit.
Carollo, Goldberg and Grimm have asked the trial judge to throw out the verdict.
At the Ghavami trial, prosecutors said they will present recordings of conversations between the banker-defendants and brokers hired by local governments, as they did in the Carollo case. That evidence will show how they worked together to manipulate rates on the investment contracts and cheat states, counties and towns of millions of dollars, prosecutors said. Some of the profit allegedly was shared with the brokers for controlling the process.
The defendants deny any wrongdoing. They have argued that the rigged bids charged by the government were “isolated in a sea of hundreds of other transactions” and were innocent. Wood said she may allow evidence of the uncharged transactions on a case-by-case basis.
Christiaan Brakman, a UBS spokesman, Russell Wilkerson, a spokesman for GE Capital, and Bank of America spokesman William Halldin declined to comment on the trial. JPMorgan Chase spokesman Joseph Evangelisti didn’t return a call seeking comment yesterday.
As many as 200 recordings related to about 40 deals will be put into evidence, prosecutors told Wood in a July 9 filing.
The government claims bidders on investment contracts were often given “last looks” at other bids, intentionally submitted losing bids and steered investment contracts in exchange for kickbacks or favorable treatment on future auctions.
Prosecutors said they will also offer testimony from witnesses who have pleaded guilty and agreed to cooperate. Those people may include Mark Zaino, a former UBS employee who was a key witness in the Carollo case. He may play a similar role in the trial of his former UBS co-workers.
Next page: Bids, Kickbacks