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(Bloomberg) -- U.S. investigators scrutinizing whether UBS Group AG illegally used unregistered securities to help Americans dodge taxes want to know whether such conduct occurred while the bank was under Justice Department supervision in an earlier tax-evasion case, a person familiar with the probe said.

UBS, the largest Swiss bank, avoided prosecution in February 2009 when it admitted to helping Americans evade taxes, paid $780 million and handed over 250 secret accounts. In a deferred-prosecution agreement with the Justice Department, the firm promised to follow the law and cooperate with the U.S.

Investigators are looking into UBS’s use of so-called bearer securities, which can be redeemed by anyone holding the paper, making them a potential tool for hiding assets. Authorities are focusing on whether UBS issued the securities to clients or invested in them on their behalf, according to the person. Investigators suspect the conduct may have occurred when the bank was still bound by the deferred-prosecution agreement, which expired in October 2010, the person said, asking not to be identified because the inquiries aren’t public.

If that’s true, the Justice Department could take the unusual step of reopening the accord and prosecuting the bank on the original conspiracy charge, according to lawyers including Michael Perino, a law professor at St. John’s University in New York.

“If you’re violating the terms of a deferred-prosecution agreement, that means the government can go back on its decision not to prosecute you,” Perino said.

New Charges

Prosecutors also could file new charges against UBS and seek stiffer penalties and oversight at sentencing for violating the previous agreement, according to Brandon Garrett, a University of Virginia law professor who has written a book examining corporate prosecutions.

“UBS has already settled three prosecution agreements since 2009,” Garrett said. “UBS is already a recidivist many times over,” he said. The government may decide to seek a conviction with probation supervision, he said.

Karina Byrne, a spokeswoman for Zurich-based UBS, declined to comment on the bearer-bond probe.

In addition to the 2009 tax-evasion agreement, the bank settled an antitrust case involving the municipal-bond investments market in 2011. It resolved another Justice Department probe in 2012 on the setting of the London interbank offered rate, or Libor.

Last year UBS said it reached an agreement to extend the term of its non-prosecution deal over Libor rigging by one year to Dec. 18, 2015. Garrett said he is unaware of the Justice Department ever reopening a closed deferred-prosecution agreement.

January Inquiries

UBS disclosed Tuesday that the bank got inquiries last month from the U.S. attorney in Brooklyn, New York, and the U.S. Securities and Exchange Commission about “potential sales to U.S. persons of bearer bonds and other unregistered securities.”

The U.S. is looking at potential violations of a 1982 budget law that limited the issuance of debt in bearer form and regulations under other U.S. securities law, the firm said.

Florence Harmon, an SEC spokeswoman, declined to comment on the probe. Nellin McIntosh, a spokeswoman for the Brooklyn U.S. attorney, didn’t respond to an e-mail seeking comment.

Popularized after the U.S. Civil War, bearer bonds were traditionally issued in paper form and were payable to whomever physically held them. Because they’re unregistered, they can be used to evade taxes or launder money, according to tax specialists including Stephen Land, a lawyer with Duval & Stachenfeld LLP.

‘Mostly Illicit’

Rendered virtually illegal in the U.S. by tax regulations, they are still common investments in Europe, he said. If held in paper form, a bearer bond offers complete anonymity.

“When you think of that kind of anonymity, you can understand why the government hates bearer bonds,” Land said.

Bearer securities largely disappeared from the U.S. market following the 1982 budget law. U.S. restrictions tightened further within the past few years, making it impractical for U.S. companies to issue bearer bonds, Land said.

U.S. investors also face strict regulations and tax consequences making the bonds unattractive, according to a 2012 client notice published by law firm Milbank Tweed Hadley & McCloy LLP.

“A lot of people believe that the advantages would be mostly illicit” and “the legitimate advantages are few,” said Richard Painter, a corporate law professor at the University of Minnesota.

While the bonds can be traded electronically, eliminating some of the secrecy benefits, they may still be treated as unregistered for the purposes of a financial institution’s internal procedures, tax experts said.

“Until you actually take the bond out of the clearing system, there is an electronic record,” said Remmelt A. Reigersman, a lawyer with Morrison & Foerster LLP. “It’s just that nobody decides to look behind the curtain.”

To contact the reporters on this story: Christie Smythe in Brooklyn at csmythe1@bloomberg.net; David Voreacos in federal court in Newark, New Jersey, at dvoreacos@bloomberg.net To contact the editors responsible for this story: Sara Forden at sforden@bloomberg.net; Michael Hytha at mhytha@bloomberg.net David Scheer

Bloomberg