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July 25, 2013

Waaaaay below federal guideline prison sentences (but big fines) for UBS bid-riggers

As reported in this Wall Street Journal, headlined "US set back on bid-rig sentencing," a federal district judge in NYC yesterday handed down a set of white-collar sentences that were far below calculated guideline ranges and far below the sentences being sought by federal prosecutors.  Here are the details:

US District Judge Kimba Wood of the Southern District of New York handed Peter Ghavami, the former co-head of UBS' municipal-bond reinvestment and derivatives desk, an 18-month sentence. Prosecutors had sought at least 17½ years and as long as 21 years, 10 months for Ghavami, who also served as the Swiss bank's head of commodities at one point.

The much harsher sentence proposed by the government would have been longer than the 11-year term given in 2011 to Galleon hedge-fund founder Raj Rajaratnam for his insider-trading conviction.

But Judge Wood, a one-time nominee to become US attorney general who also sentenced former Drexel Burnham Lambert executive Michael Milken to 10 years in prison, raised questions about the government's method of calculating losses in the case, which it had pegged at about $25 million.

She also praised Ghavami's "admirable history" and noted that he faces other penalties including a $1 million fine and deportation to Belgium, where he is a citizen. Because Ghavami, 45 years old, is not a US citizen, he also has to serve in a "low security" prison instead of a "miminum security" camp.

One of Ghavami's former colleagues, Gary Heinz, 40, a former vice president on UBS' municipal-bond reinvestment desk, was given a 27-month sentence Wednesday, while Michael Welty, 49, another former vice president, got 16 months. Prosecutors had asked for at least 19½ years for Heinz and about 11 years or more for Welty.

Last summer, a New York jury found the three former UBS employees guilty of leading a scheme that caused municipalities to pay millions of dollars more for bond deals than they needed to pay. The case dealt with an obscure corner of the bond market in which local governments raise money from investors through bond deals, then invest the proceeds in investment products that banks and others are supposed to sell in a competitive process....

In the UBS bond-rigging case however, prosecutors sought stiff penalties for actions that took place before the financial crisis, from 2001 to 2006.  The three former UBS employees caused cities, states and other municipalities to lose $25 million, the government alleged. "For years, these executives corrupted the competitive bidding process and defrauded municipalities," said Scott D. Hammond, deputy assistant attorney general in the Antitrust Division's criminal-enforcement program, in a statement.....

"We're extremely pleased with the sentence," said Charles Stillman, a lawyer for Ghavami. Ghavami intends to start serving his sentence as soon as possible, instead of waiting to see how his appeal of the case turns out, Stillman added.  Ghavami's fine of $1 million was five times greater than the maximum suggested by the government.

Heinz and Welty were fined $400,000 and $300,000, respectively, both more than the government suggested.  Marc Mukasey, Heinz's lawyer, said "We're happy that the government's outrageous sentencing request was soundly rejected."  Welty's lawyer, Gregory Poe, said that the jury acquitted Welty of wire fraud and said he will appeal the conspiracy convictions, and "we hope to clear his name."  He added that his client is grateful that Judge Wood rejected the government's sentencing position.

Over the past half-decade, the Justice Department has pursued the muni-bond cases as part of an effort to punish Wall Street banks for shortchanging cities and states. Prosecutors have enjoyed some victories, so far gathering six convictions and 13 guilty pleas.  Several were sentenced before Wednesday, with prison terms ranging from six months to four years.  Firms affected by the investigation have paid $745 million in restitution, penalties and disgorgement....

It remains to be seen whether this week's sentencing setback will affect the government's strategy in the other pending sentencing hearings.  Two former JP Morgan Chase. employees, two former Bank of America employees and three others involved with the case await sentencing.  One case remains pending and awaiting trial.

Last year, three former employees of General Electric were convicted for their roles in conspiracies related to bidding for municipal-bond-proceeds reinvestment. Two were sentenced in October to three years in prison and the third received a four-year term.

At the hearing Wednesday, prosecutors argued that the former UBS officials deserved more prison time than the former GE employees, while Judge Wood said she didn't see the cases as that different.  She also expressed doubt that anyone could accurately quantify losses in cases where the bidding process had been corrupted. In the case of the three UBS officials sentenced Wednesday, federal prosecutors also sought fines of $20,000 to $250,000 in the case.  Prosecutors called their actions a "sophisticated financial fraud" that went on for years and "victimised municipalities and other bond issuers".

There are obviously lots of interesting aspects to this sentencing story.  I am especially eager to praise Judge Wood for using big financial penalties — which make the government money and seem especially fitting for crimes of greed — while refusing to use big imprisonment terms — which cost the government money and seem unlikely to impact public safety for non-violent white-collar criminals. Relatedly, given that this article suggests that all other comparable big-rigging defendants have received sentences ranging from 6 to 48 months, I find stunning and deeply troubling that federal prosecutors were advocating in these cases for sentences ranging from more than 130 months to 260 months. Nice effort to avoid unwarranted sentencing disparities via your advocacy here, DOJ. (Not!)

July 25, 2013 at 11:12 AM | Permalink

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Comments

Interesting article it is...!!!!

Posted by: Sommerfeld-Majka @ Existenzgründung Münster | Aug 3, 2013 6:25:34 AM

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