UBS Agrees to Pay $1.4 Billion to Settle Legacy US Fraud Case

Not all the legal headaches UBS is facing have to do with Credit Suisse. It reached a settlement with the US in a legacy residential mortgage case of its own making.

According to a statement, UBS and its US-based affiliates announced last night that it reached an agreement with the US Department of Justice (DoJ) to settle a legal dispute involving residential mortgage-backed securities.

Under the settlement, UBS will $1.435 billion to resolve all civil claims brought by the DoJ in connection with past RMBS transactions in the United States. The amount is fully covered by provisions made in previous quarters.

The case was filed in November 2018 and alleged misconduct related to UBS’ underwriting and issuance of residential mortgage-backed securities issued in 2006 and 2007. The settlement for the dismissal of the complaint resolves the last case of the DoJ Working Group tasked with investigating the conduct of banks and other businesses in creating and issuing RMBS, which helped trigger the 2008 financial crisis, according to a statement from the US Attorney’s Office for the Eastern District of New York.

After an extensive investigation, the US filed a complaint alleging UBS defrauded investors in connection with the sale of 40 RMBS issued in 2006 and 2007, further alleging UBS «knowingly made false and misleading statements» to buyers of the securities relating to the characteristics of the mortgage loans underlying the RMBS. The bank’s actions violated the Financial Institutions Reform, Recovery, and Enforcement Act, and the claims in the case were based on alleged violations of mail, wire, and bank fraud statutes, among others.

With this resolution, UBS will pay for its conduct related to its underwriting and issuance of residential mortgage-backed securities.  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 US Attorney Breon Peace.

The statement went on to say the claims resolved in the settlement are allegations only and there has been no determination of liability.

With the amount of the UBS settlement, the total amount of civil penalties paid by 18 banks, originators, and rating agencies comes to over $36 billion. The institutions are Ally Financial; Aurora Loan Services; Bank of America; Barclays; Citigroup; Credit Suisse; Deutsche Bank; General Electric; Goldman Sachs; HSBC; JPMorgan; Moody’s; Morgan Stanley; Nomura; Royal Bank of Scotland; S&P; Société Générale; and Wells Fargo.