UBS AG and several of its U.S.-based affiliates will 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.
With the UBS settlement announced today, the Justice Department has collected more than $36 billion in civil penalties from entities for their alleged conduct in connection with mortgages securitized in failed RMBS leading up to the 2008 financial crisis. These resolutions include settlements with the following banks, mortgage originators, and rating agencies: Ally Financial; Aurora Loan Services; Bank of America; Barclays; Citigroup; Credit Suisse; Deutsche Bank; General Electric; Goldman Sachs; HSBC; JPMorgan; Moody’s; Morgan Stanley; Nomura; Royal Bank of Scotland; S&P; Société Générale; and Wells Fargo.
In announcing the settlement, the justice department said the United States 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 (FIRREA). The FIRREA claims were based on alleged mail, wire, and bank fraud statutes violations.
“In the wake of the 2008 financial crisis, people all across the country experienced financial ruin and emotional devastation, and many are still recovering nearly 15 years later,” said Associate Attorney General Vanita Gupta. “As this settlement demonstrates, the department and our partner agencies remain committed to holding accountable those who break the law and undermine the well-being of American families.”
USB issued a terse statement. “UBS has reached an agreement with the United States Department of Justice (DOJ) to settle a legacy matter from 2006-2007, related to the issuance, underwriting, and sale of residential mortgage-backed securities (RMBS). Under the terms of the settlement, UBS will pay USD 1.435bn to resolve all civil claims by the DOJ in connection with UBS’s legacy RMBS business in the US. The settlement has been fully provisioned in prior periods.”
U.S. Attorney Breon Peace for the Eastern District of New York said, “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. The over $36 billion collected for conduct that fueled the 2008 financial crisis reflects the Department of Justice’s deep commitment to protecting financial markets, investors and the public against fraudulent conduct.”
This settlement resolves the last case brought by a Justice Department working group dedicated to investigating the conduct of banks and other entities for their roles in creating and issuing RMBS leading up to the 2008 financial crisis.
In 2013, the Federal Housing Finance Agency (FHFA), as conservator of Fannie Mae and Freddie Mac, reached a settlement with UBS Americas Inc. for $885 million. The settlement covered claims of alleged violations of federal and state securities laws in connection with private-label residential mortgage-backed securities (RMBS) purchased by Fannie Mae and Freddie Mac to resolve certain claims related to securities sold to the companies between 2004 and 2007.
