The American arm of Swiss bank UBS was forced to pay over $10m (£8m, €8.7m) to settle charges with the US Securities and Exchange Commission (SEC).
The regulator revealed that UBS Financial Services “circumvented” the priority given to retail investors when it comes to certain types of municipal bond offerings.
Instead, it improperly gave those bonds to ‘flippers’, industry players whose job is to re-sell the vehicles to broker-dealers at a profit.
The breaches happened over a period of four years.
The watchdog added: “UBS-registered representatives facilitated over 2,000 trades with flippers, which allowed UBS to obtain bonds for its own inventory, thereby circumventing the priority of orders set by the issuers, and improperly obtaining a higher priority in the bond allocation process.”
LeeAnn Gaunt, chief of the division of enforcement’s public finance abuse unit, added: “Retail order periods are intended to prioritise retail investors’ access to municipal bonds and we will continue to pursue violations that undermine this priority.”
Trail of people
UBS did not confirm nor deny it breached municipal bonds priority rules.
The $10m settlement comprises:
- $1.75m penalty;
- $6.74m in disgorgement of ill-gotten gains;
- over $1.5m in prejudgment interest; and,
- a censure.
The UBS representatives involved have also settled charges.
William Costas and James Marvin agreed to pay disgorgement and prejudgment interest totalling $16,585 and $27,966, respectively, and a civil penalty of $25,000 each.
The pair also consented to a 12-month limitation on trading negotiated new issue municipal securities.
Recurring theme?
This is not the first time an individual linked to UBS Financial Services settles charges related to municipal bonds, however.
In April 2020, Jerry Orellana, a former executive director at the firm, was banned for six months and handed a $25,000 fine for a similar issue.
