“The DOJ’s claims are not supported by the facts or the law,” the Zurich-based bank said on Wednesday, before the complaint was filed. “UBS will contest any such complaint vigorously in the interest of its shareholders. UBS is confident in its legal position and has been fully prepared for some time to defend itself in court.” The bank also denies any wrongdoing in the French tax case.
Fighting the residential mortgage-backed securities case in court is a risk that could pay off for UBS, though could also result in a higher fine. Barclays fought back against the DOJ in a similar case two years ago, when negotiations broke down over the size of the penalty involved. Federal prosecutors in Brooklyn filed a civil complaint against the bank, but ultimately settled the case earlier this year for $US2 billion, less than half of what US authorities had originally demanded.
From 2006 through 2007, UBS misled investors about the quality of billions of dollars in subprime ‘Alt-A’ mortgage loans backing 40 RMBS deals. In publicly filed documents, UBS ‘knowingly misrepresented key characteristics of the loans,’ according to the US, which were much riskier and more likely to default than UBS represented to investors. Eventually, the 40 residential mortgage-backed securities suffered ‘serious’ losses, according to the government.
In internal communications, UBS employees made their views on originators’ practices clear, according to US prosecutors. In one instance, a UBS trader concluded a month before selling certificates to investors that the loans were ‘quite possibly better than little beside leprosy spores.’
UBS representatives didn’t respond after regular business hours on Thursday to a request for comment.
Thursday’s case was jointly brought by prosecutors in Brooklyn and Atlanta.
“UBS allegedly placed a higher priority on selling bonds and making profits than accurately representing the quality of the underlying loans to investors,” said US Attorney Byung Pak in Atlanta. “These practices resulted in massive losses to investors, harmed homeowners, and ultimately jeopardised the banking system.’
UBS already has paid hundreds of millions to resolve RMBS probes by the state of New York and the National Credit Union Administration, which blamed the bank for contributing to the collapse of corporate credit unions.
Bank of America’s Countrywide unit was the first lender to be found at fault at trial by a federal jury for selling defective mortgage loans under a decades-old statute enacted during the savings-and-loans crisis — the same law cited in the UBS complaint. But in 2016, Bank of America persuaded an appeals court to throw out a judgment of almost $US1.3 billion.
The case is U.S. v. UBS AG, 18-cv-6369, U.S. District Court, Eastern District of New York (Brooklyn).