Bank of America Corp. (NYSE:BAC) may have had a hand in the bond-market price-fixing scandal that has rocked UBS AG (NYSE:UBS), UBS PaineWebber and sent top UBS executives into federal court, as a former Bank of America bond marketer took the stand and testified that he worked with several UBS employees to rig bids on investing agreements that would favor UBS and eventually Bank of America.
Doug Campbell, former senior marketer for Bank of America Corp. (NYSE:BAC) in its municipal reinvestment and municipal interest rate hedging group (1998-2002), told a federal grand jury in Manhattan Tuesday that he worked with four former members of the UBS AG (NYSE:UBS) municipal derivatives group to fix bids and produce advising fees on transactions for work that was not performed. Campbell was testifying for the federal government in its case against former UBS employees Peter Ghavami, Michael Welty and Gary Heinz, who are all charged with conspiracy to defraud municipal-bond issuers and U.S. tax authorities by price-fixing.
Campbell himself pleaded guilty two years ago to charges of restraint of trade, conspiracy to defraud municipal issuers and wire fraud, and he is facing up to 35 years in prison and millions in financial penalties.
Campbell testified that while he was working at Bank of America Corp. (NYSE:BAC), he was offered advance information on transactions from UBS AG (NYSE:UBS) bond marketers (Welty and Heinz among them) and in exchange, Bank of America Corp.(NYSE:BAC) would deliberately submit losing bids on some occasions and would include UBS AG (NYSE:UBS) in business on transactions when possible. In these instances, Campbell testified, he would include UBS on the transaction invoice to indicate to clients that UBS had advised on the matter, when in fact it had not. UBS then would invoice Bank of America for those advisory fees.
“Generally, it was a conspiracy to allocate and rig bids in the municipal reinvestment market,” Campbell said.
This could be considered yet another black mark on both Bank of America Corp. (NYSE:BAC) and UBS AG (NYSE:UBS), which have both taken hits in the market. Hedge funds with positions in Bank of America include David Tepper’s Appaloosa Management LP, which had a $71 million stake at the end of March, while UBS AG (NYSE:UBS) had vested interests from funds like Jim Simons’ Renaissance Technologies, which had a $23.5 million stake at the end of March.