US sues UBS, alleging fraud in financial crisis
US authorities on Thursday sued Swiss banking giant UBS, accusing the European lender of fraud in the sale of mortgagebacked securities prior to the global financial crisis.
Between 2006 and 2007, the bank allegedly misled investors about the quality of billions of dollars in low-quality mortgages that were the basis of 40 derivatives deals, the Justice Department said in a statement from Washington.
The bank had said earlier Thursday that it had been advised the suit was coming and was prepared to defend itself.
“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,” Richard Donoghue, US Attorney for the Eastern District of New York, said in the statement.
The bank insisted Thursday that the allegations were “not supported by the facts or the law”, and said it would contest any complaint “vigorously”.
“UBS is confident in its legal position and has been fully prepared for some time to defend itself in court,” it said.
Subprime mortgages, credit granted to borrowers often with poor credit histories or insufficient income, were packaged into financial products and sold to investors.
But as borrowers defaulted on many of those mortgages, investors had no way to tell what portion of the loans in the derivatives were bad. Those products were at the heart of the 2008 financial crisis, which sparked a global recession and brought the international financial system to the brink of collapse. (AFP)