US sues UBS, al­leges cri­sis-era mort­gage se­cu­ri­ties fraud

Gulf Times Business - - BUSINESS -

The US govern­ment on Thurs­day filed a civil fraud law­suit ac­cus­ing UBS Group AG, Switzer­land’s largest bank, of de­fraud­ing in­vestors in its sale of res­i­den­tial mort­gage-backed se­cu­ri­ties lead­ing up to the 2008-09 global fi­nan­cial cri­sis.

UBS was ac­cused of mis­lead­ing in­vestors about the quality of more than $41bn of sub­prime and other risky mort­gage loans back­ing 40 se­cu­ri­ties of­fer­ings in 2006 and 2007, the Depart­ment of Jus­tice said in a com­plaint filed with the fed­eral court in Brook­lyn.

The law­suit came af­ter UBS re­jected a govern­ment pro­posal that it pay nearly $2bn to set­tle, ac­cord­ing to a per­son fa­mil­iar with the talks who was not au­tho­rised to speak pub­licly about them.

While UBS was not a big orig­i­na­tor of US res­i­den­tial home loans, US At­tor­ney Richard Donoghue in Brook­lyn said in­vestors suf­fered “cat­a­strophic losses” from the bank’s fail­ure to fully dis­close the risks of mort­gage se­cu­ri­ties it helped sell.

A UBS spokesman and a Jus­tice Depart­ment spokes­woman de­clined to comment on the set­tle­ment talks, but the bank said it will fight the law­suit.

“The DoJ’s claims are not sup­ported by the facts or the law,” it said in a state­ment. “UBS is con­fi­dent in its le­gal po­si­tion and has been fully pre­pared for some time to de­fend it­self in court.”

US of­fi­cials are seek­ing un­spec­i­fied fines against UBS un­der a fed­eral law al­low­ing it to pur­sue penal­ties up to the amounts the bank gained or oth­ers lost from al­leged mis­con­duct.

The case is one of the last ad­dress­ing al­leged mis­con­duct in the pool­ing and sale by large banks of mort­gage se­cu­ri­ties that were a ma­jor cause of the fi­nan­cial cri­sis.

Bank of Amer­ica Corp, Bar­clays Plc, Cit­i­group Inc, Credit Suisse Group AG, Deutsche Bank AG, Gold­man Sachs Group Inc, HSBC Hold­ings Plc, JPMor­gan Chase & Co, Mor­gan Stan­ley and Royal Bank of Scot­land Group Plc pre­vi­ously set­tled.

US of­fi­cials faulted UBS for hav­ing a busi­ness cul­ture that placed a higher pri­or­ity on prof­its than full dis­clo­sure to in­vestors, who were de­prived of cru­cial in­for­ma­tion about the quality of the loans un­der­ly­ing the se­cu­ri­ties they bought. Thurs­day’s law­suit quoted a UBS trader who in a 2006 in­stant mes­sage said “our crack due dili­gence ef­fort is a joke,” and a UBS mort­gage em­ployee who the same year com­plained to his bosses about the bank’s ethics, in­clud­ing that “Ly­ing is ok.”

Like UBS, Bar­clays had also re­sisted set­tling prior to be­ing sued by the Jus­tice Depart­ment.

That case ended in March with a $2bn set­tle­ment.

UBS was among the banks hard­est hit in the fi­nan­cial cri­sis, and has said it lost more than $45bn af­ter the US hous­ing mar­ket col­lapsed.

It was not im­me­di­ately clear how much UBS has set aside for the US case, though an­a­lysts said it might be more than half the 1.2bn Swiss francs ($1.20bn) it has re­served for so-called non-core le­gal risks.

UBS is also fight­ing charges by in­ves­ti­ga­tors in France that it helped wealthy clients avoid taxes in that coun­try, and turned down a 1.1bn euro ($1.25bn) set­tle­ment of­fer, ju­di­cial sources have said.

Shares of UBS closed up 1.3% in Euro­pean trad­ing ear­lier on Thurs­day. The US law­suit was made pub­lic af­ter mar­kets closed in that coun­try.

A sign hangs above the en­trance to UBS head­quar­ters in Zurich. UBS was ac­cused of mis­lead­ing in­vestors about the quality of more than $41bn of sub­prime and other risky mort­gage loans back­ing 40 se­cu­ri­ties of­fer­ings in 2006 and 2007, the US Depart­ment of Jus­tice said in a com­plaint.

Newspapers in English

Newspapers from Qatar

© PressReader. All rights reserved.