The US Department of Justice announced a settlement with UBS AG over alleged misconduct in the sale of residential mortgage-backed securities, (RMBS) Advisor Hub reports.
The company settled a civil action that was filed in November 2018 related to UBS’ underwriting and issuance of RMBS issued in 2006 and 2007. The complaint alleged that UBS defrauded investors in connection with the sale of 40 RMBS by knowingly making false and misleading statements to buyers of these securities.
Federal prosecutors alleged that contrary to what UBS had said in publicly filed offering documents, the firm knew that significant numbers of the loans backing the RMBS did not comply with loan underwriting guidelines designed to assess borrowers’ ability to repay. Furthermore, UBS allegedly knew that the property values associated with some of the securitized loans were unsupported, and that significant numbers of the loans had not been originated in accordance with consumer protection laws. The 40 mortgage-backed securities issued over a two-year period sustained substantial losses.
The Department of Justice said the UBS case brings to over $36 billion the amount collected in civil penalties from 18 major domestic and foreign banks, originators, and rating agencies for alleged conduct in connection with mortgages securitized in failed RMBS leading up to the 2008 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, United States Attorney for the Eastern District of New York. “The over $36 billion collected for conduct that fueled the 2008 financial crisis reflects the Department of Justice’s deep commitment to protecting financial markets, investors and the public against fraudulent conduct.”
UBS will pay the United States $1.435 billion in civil penalties in exchange for dismissal of the complaint filed in the action. The company was found to have violated the Financial Institutions Reform, Recovery, and Enforcement Act of 1989, 12 U.S.C. § 1833a (FIRREA).
UBS attempted to dismiss the lawsuit in 2019, claiming there was no fraudulent intent by any employees and that the suit failed to allege sufficient facts to show motive, opportunity or deliberately illegal behavior. But a federal judge allowed the case to go forward.
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