UBS said it will contest the civil complaint filed by the US Department of Justice (DOJ) alleging that it had committed fraud in the sale of its residential mortgage-backed securities (RMBS) from 2006 to 2007.
The civil case against UBS has been filed in the US District Court for the Eastern District of New York, pertaining to the company’s issuance, underwriting and sale of RMBS during the period.
The DOJ has accused the Swiss investment banking company of defrauding investors across the US and the world through the sale of the units.
The department claimed that the Swiss banking firm misled investors regarding the quality of billions of dollars in subprime and Alt-A mortgage loans backing 40 RMBS deals, in the period from 2006 through 2007.
It added that UBS, particularly, in publicly-filed offering documents, had intentionally misrepresented important characteristics of the loans. DOJ claims that the company had concealed the fact that the loans were much riskier and much more likely to default than what it had represented.
Eventually, the 40 RMBS suffered catastrophic losses, said the department, which is now seeking unspecified monetary civil penalties under the Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA) regarding the transactions made by the Swiss banking firm and its US affiliates.
Principal Deputy Associate Attorney General Jesse Panuccio said: “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.
“This suit aims to hold UBS accountable and sends a strong message that the Department of Justice will not tolerate fraud committed by corporations.”
The Swiss investment bank accused the DOJ that its claims are not backed by the facts or the law and that it is confident in its legal position. It further said that it is ready to defend itself in court.
The company, in a statement, said: “UBS invested USD 100 billion in U.S. residential mortgage-related assets and lost more than USD 45 billion when the housing market collapsed, including losses of nearly USD 900 million on the RMBS referred to in the complaint – more than the losses on the certificates UBS sold to any other single investor.
“This fact alone negates any inference that UBS engaged in an intentional fraud that was flatly against its own economic interest.”