UBS AG and several of its United States-based affiliates have agreed to pay $1.435 billion in penalties to settle a civil action filed in November 2018 alleging misconduct related to UBS’ underwriting and issuance of residential mortgage-backed securities (RMBS) issued in 2006 and 2007.
UBS will pay the U.S. $1.435 billion in civil penalties in exchange for dismissal of the complaint filed in the action. This settlement resolves the last case brought by a Department of Justice Working Group dedicated to investigating conduct of banks and other entities for their roles in creating and issuing RMBS leading up to the 2008 financial crisis.
Following an extensive investigation, the U.S. filed a complaint alleging that UBS defrauded investors in connection with the sale of 40 RMBS issued in 2006 and 2007. The complaint alleged that UBS knowingly made false and misleading statements to buyers of these securities relating to the characteristics of the mortgage loans underlying the RMBS in violation of the Financial Institutions Reform, Recovery and Enforcement Act of 1989, 12 U.S.C. § 1833a (FIRREA). The FIRREA claims were based on alleged violations of the mail, wire and bank fraud statutes, as well as 18 U.S.C. §§ 1005 and 1014.
“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,” stated United States Attorney for the Eastern District of New York, Breon Peace.
The government’s complaint alleged that contrary to UBS’ representations in publicly filed offering documents, UBS knew that significant numbers of the loans backing the RMBS did not comply with loan underwriting guidelines that were designed to assess borrowers’ ability to repay. The complaint further asserted that UBS knew that the property values associated with a significant number of the securitized loans were unsupported, and that significant numbers of the loans had not been originated in accordance 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. Ultimately, the 40 RMBS sustained substantial losses.
Including this UBS settlement, the Department of Justice has collected more than $36 billion in civil penalties from 18 major domestic and foreign banks, originators and rating agencies for their alleged conduct in connection with mortgages securitized in failed RMBS leading up to the 2008 financial crisis.
The claims resolved in the settlement are allegations only and there has been no determination of liability.
The matter involving UBS was handled by the United States Attorneys’ Offices for the Eastern District of New York and the Northern District of Georgia, with the support of agents from FHFA-OIG.
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