The Department of Justice Department has filed a civil complaint against UBS and its U.S. affiliates, alleging the sale of residential mortgage-backed securities to investors was fraudulent.
UBS misled investors about the quality of billions of dollars in subprime and Alt-A mortgage loans backing 40 RMBS deals, between 2006 to 2007, the years just prior to the financial meltdown.
“The complaint alleges that instead of ensuring that their representations to investors were accurate and transparent, UBS affirmatively misled investors and withheld crucial information from them about the loans in its deals,” said United States Attorney Pak, for the Northern District of Georgia. “UBS allegedly placed a higher priority on selling bonds and making profits than accurately representing the quality of the underlying loans to investors. These practices resulted in massive losses to investors, harmed homeowners, and ultimately jeopardized the banking system.”
According to the government, in offering documents for the bonds UBS misrepresented the loans and concealed that the loans were much riskier and more likely to default than the bank represented. Ultimately, the 40 RMBS sustained catastrophic losses.
The complaint alleges that UBS’ actions violated the Financial Institutions Reform, Recovery, and Enforcement Act of 1989, including mail fraud, wire fraud, bank fraud, and other misconduct. The ACT authorizes the attorney general to seek civil penalties up to the amount of the gain derived from the violation, or the losses investors suffered.
“The fraudulent actions by UBS as alleged in the complaint contributed to the 2008 financial crisis, which resulted in lasting economic harm to the nation and unnecessary suffering for Americans,” said Principal Deputy Associate Attorney General Jesse Panuccio. “This suit aims to hold UBS accountable and sends a strong message that the Department of Justice will not tolerate fraud committed by corporations.
“Investors who bought RMBS from UBS suffered catastrophic losses, which not only caused direct harm to those investors, but also contributed to the financial crisis of 2008,” said United States Attorney Donoghue. “The filing of this complaint makes clear that we will continue to hold financial institutions fully accountable for their conduct and will aggressively pursue financial fraud.”
