Ex-UBS Officials Rigged Muni-Bond Bids, Star Witness Says

Mark Zaino, the prosecution’s star witness in the trial of three former UBS AG (UBSN) municipal-bond executives, began his testimony by telling jurors how he and the defendants fixed bids on bond-investment contracts.

Zaino, called “a snake” by defense lawyers yesterday in their opening statements in Manhattan federal court, testified about excluding aggressive bidders, soliciting intentional losing bids and giving information to favored bidders to rig outcomes on investing the proceeds of bonds issued by U.S. cities and towns.

“Depending on who was the favored provider, I would adjust the bid specifications,” Zaino said, testifying in Manhattan federal court today in the trial of Peter Ghavami, former co- head of UBS’s municipal-derivatives group, Gary Heinz and Michael Welty.

Zaino told jurors he is testifying for the government after pleading guilty to three criminal counts in 2010. Facing a possible sentence of 35 years in prison, he said he’s cooperating with prosecutors in hopes of receiving a more lenient punishment.

Ghavami, Heinz and 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 the prices on the investing agreements. Banks already have paid more than $700 million to settle U.S. claims.

Banks, Brokers

The trial, which began yesterday before U.S. District Judge Kimba Wood, grows out of a nationwide probe of bid-rigging involving banks and brokers including CDR Financial Products Inc. The defendants deny any wrongdoing.

Prosecutors said in a court filing that they will tell jurors about bid-rigging involving UBS, JPMorgan Chase & Co. (JPM), Bank of America Corp. and General Electric Co. (GE) in the fraud alleged against the three former UBS executives.

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. Joseph Evangelisti, a JPMorgan Chase spokesman didn’t return a call seeking comment.

Zaino told jurors he is a former CDR employee who was hired in 2001 by UBS, where he worked alongside the three defendants.

In May, he was a key witness in the conviction of three former GE bankers.

The 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.

Carollo, Goldberg and Grimm have asked the trial judge to throw out the verdict.

As many as 200 recordings related to 38 deals will be put into evidence, prosecutors told Wood in a July 9 filing.

Both sides estimate the trial will last about four weeks. Zaino’s direct testimony will take about two days, according to the government. Defense lawyers will then have the chance to question him.

The case is U.S. v. Ghavami, 10-cr-1217, U.S. District Court, Southern District of New York (Manhattan).

To contact the reporters on this story: Bob Van Voris in New York at rvanvoris@bloomberg.net.

To contact the editors responsible for this story: Michael Hytha at mhytha@bloomberg.net.

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