A federal jury in New York City today convicted three former financial services executives for their participation in frauds related to bidding for contracts for the investment of municipal bond proceeds and other municipal finance contracts, the Department of Justice announced.
Peter Ghavami, Gary Heinz, and Michael Welty, all former UBS AG executives,
were found guilty on conspiracy and fraud charges in the U.S. District Court in
New York City. Ghavami was found guilty on two counts of conspiracy to commit
wire fraud and one count of substantive wire fraud. Heinz was found guilty on
three counts of conspiracy to commit wire fraud and two counts of substantive
wire fraud. Welty was found guilty on three counts of conspiracy to commit wire
fraud. Heinz was found not guilty on one count of witness tampering, and Welty
was found not guilty on one count of substantive wire fraud.
The trial began on July 30, 2012. Ghavami, Heinz, and Welty were initially
indicted on December 9, 2010.
“For years, these executives corrupted the competitive bidding process and
defrauded municipalities across the country out of money for important public
works projects,” said Scott D. Hammond, Deputy Assistant Attorney General of the
Antitrust Division’s criminal enforcement program. “Today’s convictions
demonstrate that the division is committed to holding accountable those who seek
to unfairly and illegally undermine competitive markets.”
According to evidence presented at trial, while employed at UBS, Ghavami,
Heinz, and Welty participated in separate fraud conspiracies and schemes with
various financial institutions and with a broker at various time periods from as
early as March 2001 until at least November 2006. These financial institutions,
or providers, offered a type of contract—known as an investment agreement— to
state, county, and local governments and agencies and not-for-profit entities
throughout the United States. The public entities were seeking to invest money
from a variety of sources, primarily the proceeds of municipal bonds that they
had issued to raise money for, among other things, public projects. Public
entities typically hire a broker to assist them in investing their money and to
conduct a competitive bidding process to determine the winning provider.
According to evidence presented at trial, while acting as providers, Ghavami,
Heinz, and Welty, with their provider and broker co-conspirators, corrupted the
bidding process for more than a dozen investment agreements to increase the
number and profitability of the agreements awarded to UBS. At other times, while
acting as brokers, Ghavami, Heinz, Welty, and their co-conspirators arranged for
UBS to receive kickbacks in exchange for manipulating the bidding process and
steering investment agreements to certain providers.
Ghavami, Heinz, and Welty deprived the municipalities of competitive interest
rates for the investment of tax-exempt bond proceeds that were to be used by
municipalities to refinance outstanding debt and for various public works
projects, such as for building or repairing schools, hospitals, and roads.
Evidence at trial established that they cost municipalities around the country
and the U.S. Treasury millions of dollars.
During the trial, the government presented specific evidence relating to
approximately 26 corrupted bids and approximately 76 recorded conversations made
by the co-conspirator financial institutions. Among the issuers and
not-for-profit entities whose agreements or contracts were subject to the
defendants’ schemes were the Commonwealth of Massachusetts, the New Mexico
Educational Assistance Foundation, the Tobacco Settlement Financing Corporation
of Rhode Island, and the RWJ Health Care Corp at Hamilton.
“Corrupt bidding schemes serve to weaken the public’s trust in the municipal
bond market and prevent public entities from enjoying the benefits of a true
competitive bidding process,” said Mary E. Galligan, Acting Assistant Director
in Charge of the FBI in New York. “Today’s conviction is further proof of our
efforts to weed out these corrupt criminals and ensure justice is served.”
“Today’s verdict is important because it confirms that these complex,
seemingly uninteresting backroom deals have a real impact on taxpayers, who
should benefit from a municipal bond issue and are ultimately responsible for
paying it off,” said Richard Weber, Chief, Internal Revenue Service-Criminal
Investigation (IRS-CI). “Today’s convictions send a strong message to the
municipal bond industry and demonstrates the commitment of the Internal Revenue
Service and the Justice Department to rid the industry of corrupt
A total of 20 individuals have been charged as a result of the department’s
ongoing municipal bonds investigation. Including today’s convictions, a total of
19 individuals have been convicted or pleaded guilty, and one awaits trial.
Additionally, one company has pleaded guilty.
Two of charged fraud conspiracies carry a maximum penalty per count of 30
years in prison and a $1 million fine. A third fraud conspiracy charge carries a
maximum penalty of five years in prison and a $250,000 fine. The two wire fraud
charges carry a maximum penalty per count of 30 years in prison and a $1 million
fine. These maximum fines per count may be increased to twice the gain derived
from the crime or twice the loss suffered by the victims of the crime, if either
amount is greater than the statutory maximum fine.
The verdict announced today resulted from an ongoing investigation conducted
by the Antitrust Division’s New York and Chicago Offices, the FBI, and the
IRS-CI. The division is coordinating its investigation with the U.S. Securities
and Exchange Commission, the Office of the Comptroller of the Currency, and the
Federal Reserve Bank of New York.
Today’s convictions are part of efforts underway by President Obama’s
Financial Fraud Enforcement Task Force (FFETF), which was created in November
2009 to wage an aggressive, coordinated, and proactive effort to investigate and
prosecute financial crimes. With more than 20 federal agencies, 94 U.S.
Attorneys’ Offices and state and local partners, it is the broadest coalition of
law enforcement, investigatory, and regulatory agencies ever assembled to combat
fraud. Since its formation, the task force has made great strides in
facilitating increased investigation and prosecution of financial crimes;
enhancing coordination and cooperation among federal, state, and local
authorities; addressing discrimination in the lending and financial markets; and
conducting outreach to the public, victims, financial institutions, and other
organizations. Over the past three fiscal years, the Justice Department has
filed more than 10,000 financial fraud cases against nearly 15,000 defendants
including more than 2,700 mortgage fraud defendants. For more information on the
task force, visit www.stopfraud.gov.
Anyone with information concerning bid rigging and related offenses in any
financial markets should contact the Antitrust Division’s New York Field Office
at 212-335-8000, the FBI at
212-384-5000 , or IRS-CI at
212-436-1761 ; or visit
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Friday, August 31, 2012
Three Former UBS Executives Convicted for Frauds Involving Contracts Related to the Investment of Municipal Bond Proceeds
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