UBS agrees $1.4bn settlement for fraud claims from 2008

Filed in November 2018, the settlement resolves the last case brought by a Justice Department working group focused specifically on the conduct of banks and other entities for their roles in creating and issuing residential mortgage-backed securities leading up to the 2008 financial crisis.

The complaint, in connection with the sale of 40 residential mortgage-backed securities, alleged UBS knowingly made false and misleading statements to buyers in relation to the characteristics of the mortgage loans.  

Responding to the news, US attorney general Breon Peace– eastern district of New York – said: “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.

“The over $36bn 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.”

US attorney Ryan Buchanan for the northern district of Georgia added: “This settlement represents accountability from those who thought they were above the law. 

“UBS’ conduct at issue in this case played a significant role in causing a financial crisis that harmed millions of Americans. We will continue to seek accountability when financial institutions – large or small – misrepresent vital information to investors and undermine trust in our public markets.”

The government’s complaint alleged that, contrary to UBS’ representations in publicly filed offering documents, the business knew that significant numbers of the loans backing the residential mortgage-backed securities did not comply with loan underwriting guidelines designed to assess borrowers’ ability to repay. 

It also asserted that UBS knew the property values associated with a significant number of the securitised loans were unsupported, and that most of the loans had not been originated in accordance with consumer protection law. The business was also allegedly aware of these significant problems because it conducted extensive due diligence on the underlying loans prior to them being issued.