Ex-UBS Banker Says Strippers Didn’t Cause Deal Conflict

A former UBS AG banker told a London court that paying $7,100 for strippers to entertain consultants advising a German utility on a disputed derivatives deal didn’t create a conflict of interest.

The banker, Steven Bracy, told a London court today that it wasn’t typical for him to pay for that type of entertainment while he worked at UBS. Kommunale Wasserwerke Leipzig, the water utility, says the inappropriate relationship between its own consultants and Bracy invalidates the swaps contract with the bank, which is seeking about $140 million in the lawsuit.

“I did not think it was inappropriate as to their representing of their client on the transaction,” Bracy said on his second day of testimony in the case. He said the consultants had requested that a lawyer they knew book entertainment for their visit to New York. “It didn’t work out. I paid for it.”

Disputes over complicated financial products that backfired on customers, often municipal agencies and small companies, have led to lawsuits, regulatory probes and a handful of criminal prosecutions. The deals with the utility led to German bribery convictions for the consultants, Juergen Blatz and Berthold Senf, over allegations that began before UBS’s involvement.

UBS argues the single-tranche collateralized-debt obligations in 2006 and 2007 were intended to diversify KWL’s risk and generate cash for the water provider, and it should honor the debt. The bank said in court documents that the consultants at Value Partners were clearly acting as KWL’s adviser, and it rebuffed any attempts by Swiss-based Value Partners to blur that line.

While the company was identified in court documents only as Value Partners, Swiss corporate filings indicate the full name was Value Partners Associates AG.

Hana Dunn, a spokeswoman for UBS in London, declined to comment today. The bank said in a statement earlier in the trial it considers KWL’s allegations to be unfounded.


Bracy offered to reimburse the consultants for the strippers the next morning.

“Sorry about last evening,” Bracy said in a June 2006 e-mail to Value Partners read out by KWL’s lawyer Timothy Lord, in which he offered to send a check for $7,100 from his own bank account. “You should not have to pay for a service you did not use.”

“In any event the fourth one was very, very pretty, almost enough to make up for the other three,” Bracy, who is also a lawyer, said in the e-mail.

Other e-mails introduced at the trial show Bracy asking UBS to compensate Value Partners for introducing new business to the bank. “Value Partners is an extension of our staff,” Bracy said in a 2007 e-mail.

Bracy told the court that the bank never paid Value Partners any money.

Internal Credit

“Reading e-mails from the time now, I can see that I sometimes inflated my importance within UBS somewhat with a view to maximizing my own internal credit,” Bracy said in court documents.

He said in the witness statement that he didn’t intend for Value Partners to put its relationship with UBS ahead of its obligations to its clients.

Bracy, who left UBS in 2008, agreed not to associate with any member of the U.S. Financial Industry Regulation Authority after he was investigated for submitting false expense reports while at UBS and his subsequent employer, Ross, Sinclaire & Associates in Columbus, Ohio, according to a November Finra ruling. He left Ross, Sinclaire & Associates three months ago.

The case is UBS AG v Kommunale Wasserwerke Leipzig GmbH, case no. 10-50, U.K. High Court of Justice, Queen’s Bench Division.

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