The U.S. Justice Department arrested UBS's former global head of commodities in New York on a single count of wire fraud stemming from a scheme to defraud a municipal bond issuer.  Peter Ghavami, a Belgian national who left UBS in 2007, faces up to 20 years in prison and $250,000 in fines if convicted of helping to rig a competitive bid involving proceeds from a municipal bond offering.  The alleged scheme took place between 10/24/01 and 2/11/02.  Ghavami joined UBS in 2000 and served as co-head of its municipal bond reinvestment and derivatives desk before becoming the commodities chief.

On 11/30, former JPMorgan banker James L. Hertz admitted to participating in bid-rigging and fraud conspiracies that delivered profits to Wall Street at taxpayer expense.  [see Hertz story elsewhere in C-I's WHO blog]  

    Details of Ghavami's Case.   The case against Ghavami, aka Peter Ghavamilahidji, was aided by the testimony of a former colleague and cooperating witnesses from L.A.-based CDR Financial Products and an unidentified Charlotte, NC-based financial company (though to be Bank of America).

BofA has been aiding the Justice Department probe since 2007 in return for leniency.  In September, Douglas Lee Campbell, a former BofA muni derivatives exec, pleaded guilty and agreed to cooperate.  In May, Mark Zaino, who worked on UBS's muni bond and derivatives trading desk from 2001 to 2006, pleaded guilty to participating in a conspiracy to rig bids for the contracts.

According to an earlier DOJ complaint ... Ghavami worked as a broker in 2001 to an unidentified state that sought a contract to invest bond proceeds.  While the agreement was supposed to be awarded to the lowest-cost bidder, Ghavami arranged for the deal to go to the unidentified Charlotte, NC-based bank in exchange for a kickback to be paid to his employer in 2002.  Ghavami had a certificate, falsely claiming that the price of the investment contract was determined through an arms-length transaction, delivered to the state issuer in November 2001.  The certificate also stated that Ghavami's employer didn't expect to be paid any broker or bidding agent's fee tied to the contract.

After that bank won the agreement, Ghavami asked the unidentified CDR employee to call the banker and remind him to pay the kickback. In February 2002, Ghavami's employer received the $100,000, which was “disguised as a ‘re-hedge' fee,” the government said.  Previous pleadings showed that bankers hid kickbacks as sham fees connected to derivative transactions.

    DOJ's Investigation, Thus Far.   Fifteen former bankers and advisers have been charged.  Court records obtained by Bloomberg also identify co-conspirators from banks including Citigroup Inc., Lehman Brothers Holdings Inc. and Wachovia Corp. who haven't been charged.  UBS was notified on 2/4/08 by the SEC that it was considering suing the bank in connection with the bidding of financial instruments associated with municipal bonds.  UBS is cooperating with the Justice Department and the SEC, according to the bank's latest quarterly report.  

For further details, click onto:  [Bloomberg, "Second Ex-UBS Banker Snared ...", 12/3]   [Reuters, 12/2]