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NEW YORK (Reuters) - Three former UBS AG UBSN.VX bankers were sentenced to prison on Wednesday for deceiving U.S. municipalities by rigging bids to invest municipal bond proceeds, with the longest sentence at 27 months, a fraction of what prosecutors had sought.
Gary Heinz, 40, a former bank vice president who was caught on recordings discussing the scheme, received the prison sentence of 27 months. U.S. District Judge Kimba Wood also ordered Heinz to pay a $400,000 fine.
Peter Ghavami, 45, who left UBS in 2007 as global head of commodities, was sentenced to 18 months in prison and ordered to pay a $1 million fine; and Michael Welty, 49, a former vice president, was sentenced to 16 months and ordered to pay a $300,000 fine.
"We're very pleased at the outcome and we feel that justice was done," said Charles Stillman, a lawyer for Ghavami.
Prosecutors said the bankers steered financial contracts to their friends in exchange for kickbacks and other favors between 2001 and 2006, while falsely certifying that the processes were competitive.
A federal jury convicted all three last August of conspiring to defraud municipal bond issuers, and also convicted Ghavami and Heinz of wire fraud. UBS agreed in 2011 to pay $160 million in restitution, penalties and disgorgement for the scheme.
Prosecutors had sought sentences of at least 19-1/2 years for Heinz, at least 17-1/2 years for Ghavami and at least 11-1/4 years for Welty.
Wood cut the range of potential sentences for all three in U.S. District Court in New York on Wednesday, saying that their criminal behavior was aberrational from their otherwise law-abiding lives, and because the victims have been "compensated highly" by the UBS settlement.
Kalina Tulley, a lawyer at the Department of Justice's antitrust division, said Wood's reduction in sentencing ranges "greatly under-estimates the seriousness of the offense."
"These were municipalities that were looking to invest the taxpayers' money," Tulley pleaded with Wood to no avail, in a courtroom filled with the bankers' friends and families. "These defendants abused that trust."
Ghavami, a Belgian national, was the first of three former members of UBS's municipal securities desk to be sentenced.
"I've always tried to conduct my life with integrity and consideration," Ghavami told Wood, before apologizing to affected municipalities and his wife, Julie, and daughter, Athena. "All I want to do is to protect Julie and Athena from harm and to get to the point where we can be a family again."
Ghavami will be deported to Belgium after serving his sentence at a low-security federal prison. Heinz and Welty are eligible to serve their sentences at a minimum security camp, an option not available to Ghavami because he is not a U.S. citizen.
The U.S. Department of Justice charged Heinz, Ghavami and Welty in 2010 as part of its broad investigation of the $3.7 trillion U.S. municipal bond market, in which at least 19 people have been convicted or pleaded guilty.
"For years, these executives corrupted the competitive bidding process and defrauded municipalities across the country for important public works projects," Scott D. Hammond, deputy assistant attorney general of the antitrust division's criminal enforcement program, said in a statement after the sentencings. "The division will continue to prosecute those who subvert and corrupt competitive markets for personal profit."
The case is U.S. v. Ghavami et al, U.S. District Court, Southern District of New York, No. 10-cr-01217.
Reporting by Bernard Vaughan; Editing by Dan Grebler and Leslie Adler