[ by Howard Haykin ] Peter Ghavami, former co-head of UBS AG (UBSN)’s municipal-derivatives group, went on trial Monday in federal court in Manhattan, with 2 ex-colleagues in a bond bid-rigging probe.  U.S. District Judge Kimba Wood is presiding. The Three Defendants - Ghavami, along with Gary Heinz and Michael Welty are charged in a 6-count indictment with “long-running conspiracies and schemes to defraud” municipal-bond issuers and U.S. tax authorities by fixing prices on agreements for investing the proceeds of municipal-bond sales.  The case arose out of a nationwide probe of bid-rigging involving banks and brokers, including CDR Financial Products Inc. Banks named in the fraud investigation - UBS, JPMorgan Chase & Co., Bank of America Corp., and General Electric Co. - have already settled their cases - in exchange for agreeing to pay, in sum, $700 million to U.S. authorities.  The respective banks agreed to pay over $700 million to settle U.S. claims. The U.S. prosecutors seek to prove "the knowing and active participation"” of all the above mentioned banks in the same fraud alleged against the 3 former UBS executives, according to a 7/6/12 court filing.  The case is expected to last about 4 weeks. Others Who Have Been Charged. In addition to the 3 individuals on trial and 4 banks that settled with the government, Beverly Hills, CA-based CDR Financial Products and 13 individuals all pled guilty to criminal charges. In May, 3 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.  The government claimed that from August 1999 to November 2006 the men gave kickbacks to brokers hired by local governments to solicit bids, seeking to win auctions and increase their profit. Carollo, Goldberg, and Grimm appealed the rulings and have asked the trial judge to throw out the verdicts. Recorded Conversations. In the current Ghavami Trial, prosecutors plan to present recordings of conversations between the banker-defendants and brokers hired by local governments - the same tactic used in the Carollo Trial.  That evidence supposedly will show how ex-UBS personnel worked together to manipulate rates on the investment contracts and cheat states, counties and towns of millions of dollars, prosecutors said.  Some of the profit allegedly was shared with the brokers for controlling the process. The defendants deny any wrongdoing, and have argued that the rigged bids charged by the government were “isolated in a sea of hundreds of other transactions” and were innocent. Wood said she may allow evidence of the uncharged transactions on a case by case basis. 40 Deals. As many as 200 recordings related to about 40 deals will be put into evidence, prosecutors told Wood in the July 9 filing. The government claims bidders on investment contracts were often given “last looks” at other bids, intentionally submitted losing bids and steered investment contracts in exchange for kickbacks or favorable treatment on future auctions. Government Witnesses. Prosecutors also plan to introduce testimony from witnesses who have pleaded guilty and agreed to cooperate. Those people may include Mark Zaino, a former UBS employee who was a key witnesses in the Carollo case. In the Carollo case, Zaino testified that he and others at UBS helped Peter Grimm, a former banker at a GE subsidiary, win bids in exchange for kickbacks.  UBS gave Grimm information on what other banks had bid on 5 deals, allowing him to lower the rate he was prepared to bid and still win, he said. Following the bid, the GE subsidiary would enter into a swap with UBS which served to disguise kickbacks, he testified. UBS booked profit of more than $1.5 million on 3 swaps, Zaino said. "He and others at UBS helped Grimm not only win, but win at profitable rates because Grimm paid," said Kevin Hart, an antitrust prosecutor, in his closing statement in the Carollo trial. The government also played a tape at the Carollo trial in which Michael Welty, one of the UBS defendants going to trial today, acted as a broker for a $100 million deal for a Denver- based hospital system in January 2002. Grimm told Welty he could bid at 2.46% or higher, according to a tape played at the May trial. Five minutes later, Welty called Grimm back and told him to bid 2.38%. Grimm won the deal and UBS made $75,000. The amount of evidence collected in the case is massive, Charles Stillman, a lawyer for Ghavami, said in court. The U.S. has provided more than 600,000 audiotapes and hundreds of millions of documents, he said. The case is U.S. v. Ghavami, 10-cr-1217, U.S. District Court, Southern District of New York (Manhattan). For further details, go to:  [Bloomberg, 7/30/12].