UBS and several of its U.S.-based affiliates have reached a $1.4 billion settlement to resolve all civil claims brought against it by the Department of Justice (DoJ) relating to UBS’s legacy residential mortgage-backed securities (RMBS) business in the United States.
“With this resolution, UBS will pay for its conduct related to its underwriting and issuance of residential mortgage-backed securities,” said Breon Peace, U.S. Attorney for the Eastern District of New York. “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 scope of this settlement should serve as a warning to other financial institutions – both large and small – of the significant penalties that can result when corporations misrepresent vital information to investors and undermine trust in our public markets,” said Ryan Buchanan, U.S. Attorney for the Northern District of Georgia.
Following an extensive investigation, the United States filed a civil action in November 2018 alleging UBS defrauded investors relating to the sale of 40 RMBS issued in 2006 and 2007. The complaint alleged UBS “knowingly made false and misleading statements to buyers of these securities relating to the characteristics of the mortgage loans underlying the RMBS,” and that the conduct allegedly violated the mail, wire, and bank fraud statutes of the Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA).
In its complaint, the government alleged, “contrary to UBS’ representations in publicly filed offering documents, UBS knew that significant numbers of the loans backing the RMBS did not comply with loan underwriting guidelines that were designed to assess borrowers’ ability to repay,” according to the DoJ.
The agency further alleged UBS “knew that the property values associated with a significant number of the securitized loans were unsupported, and that significant numbers of the loans had not been originated in accordance with consumer protection laws.” UBS also allegedly knew of these “significant problems because it had conducted extensive due diligence on the underlying loans prior to the RMBS being issued to determine whether the loans were consistent with representations that would be made to investors,” the DoJ said. “Ultimately, the 40 RMBS sustained substantial losses.”
Including UBS, the DoJ has collected more than $36 billion in civil penalties from 18 domestic and foreign banks, mortgage originators, and rating agencies for their alleged conduct related to mortgages securitized in failed RMBS leading up to the 2008 financial crisis. The UBS case marks the last RMBS Working Group case resolved by the U.S. Attorney’s Office of the Eastern District of New York. According to the DoJ, over $11 billion in penalties have been recovered in six cases. 
Jaclyn Jaeger is a contributing editor at Compliance Chief 360° and a freelance business writer based in Manchester, New Hampshire.