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UBS lands $10m fine for rigging municipal bonds against small investors

Mohit Oberoi
Author: Mohit Oberoi

Last Updated: July 21, 2020
UBS chief executive Sergio Ermotti

The US Securities and Exchange Commission (SEC )has slapped $10m fine on UBS for rigging municipal bond offerings in favor of broker-dealers at the cost of retail investors.

UBS improperly allocated bonds intended for retail customers to parties known in the industry as ‘flippers,’ between 2012 and 2016, “who then immediately resold or ‘flipped’ the bonds to other broker-dealers at a profit,” according to the SEC.

The SEC added: “The order finds that UBS registered representatives knew or should have known that flippers were not eligible for retail priority. In addition, the order finds that UBS registered representatives facilitated over 2,000 trades with flippers, which allowed UBS to obtain bonds for its own inventory, thereby circumventing the priority of orders set by the issuers and improperly obtaining a higher priority in the bond allocation process.”

The Swiss bank, led by chief executive Sergio Ermotti (pictured), agreed to a cease-and-desist order without accepting or denying the SEC findings. “After fully cooperating with the SEC, UBS is pleased to have resolved this matter related to conduct that occurred between 2012 and 2016 in its former distribution business of negotiating new issue municipal bonds,” said a UBS spokesperson on Monday.

This is not the first time that the SEC has brought charges of flipping municipal bonds. Prior to the Monday order, it has brought flipping charges four more times over the last two years.

LeeAnn Gaunt, chief of the Division of Enforcement’s Public Finance Abuse Unit, said: “Retail order periods are intended to prioritize retail investors’ access to municipal bonds and we will continue to pursue violations that undermine this priority”

UBS shares lifted 3.6% in early trading on Tuesday after the company posted better than expected second-quarter earnings. However, it warned of continued credit losses in the second half of the year due to pandemic.

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Mohit Oberoi

Mohit Oberoi is a freelance finance writer based in India. he has completed his MBA with finance as majors and also holds a CFA charter. He has over 13 years of experience in financial markets. He has been writing extensively on global markets for the last six years and has written over 6,500 articles. He mainly covers metals, electric vehicles, asset managers, and other macroeconomic news. He also loves writing on personal finance and topics related to valuation.