UBS settles case over mortgage-backed securities in lead-up to financial crisis

The sins of the global financial crisis continue to play out, with Swiss banking giant UBS AG agreeing to pay US$1.44 billion to resolve allegations that it made misrepresentations to investors in offerings of mortgage-backed securities issued in 2006 and 2007.

The U.S. attorney’s office for the Eastern District of New York announced that UBS agreed to settle the allegations of misconduct from the U.S. Department of Justice (DoJ).

The DoJ alleged that UBS defrauded investors in connection with 40 residential mortgage-backed securities (RMBS) offerings when it “knowingly made false and misleading statements to buyers of these securities” about the underlying mortgage loans.

Specifically, the government alleged the firm knew that significant numbers of these loans didn’t comply with loan underwriting guidelines, that the property values associated with certain loans were unsupported, and that some of the loans didn’t comply with consumer protection laws.

“UBS was allegedly aware of these significant problems because it had conducted extensive due diligence on the underlying loans prior to the RMBS being issued to determine whether the loans were consistent with representations that would be made to investors,” the DoJ alleged.

Ultimately, the vehicles suffered “substantial losses,” it said.

With this latest settlement, the DoJ will have collected over US$36 billion in civil penalties from 18 financial firms, originators and rating agencies in connection with failed RMBS created in the years leading up to the financial crisis.

“The substantial civil penalty in this case serves as a warning to other players in the financial markets who seek to unlawfully profit through fraud that we will hold them accountable no matter how long it takes,” said Breon Peace, U.S. attorney for the Eastern District of New York.

James Langton

James is a senior reporter for Advisor.ca and its sister publication, Investment Executive. He has been reporting on regulation, securities law, industry news and more since 1994.