WASHINGTON - UBS will pay $1.4-billion to settle US charges that it defrauded investors in the sale of mortgage-backed securities, resolving the last big case stemming from the 2008 financial crisis, the Justice Department announced Monday.
The department agreed to dismiss a civil complaint against UBS in exchange for the fine, which brings the total federal penalties to $36-billion in settlements from nearly 20 financial institutions, a Department of Justice (DOJ) press release said.
In its civil case launched in 2018, the DOJ had argued that UBS knowingly made false and misleading statements in connection with the sale of 40 residential mortgage-backed securities (RMBS) issued in 2006 and 2007.
The DOJ had alleged that contrary to UBS representations, the giant Swiss bank "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."
The DOJ's original complaint quoted a UBS mortgage official as referring to a pool of loans as "a bag of sh[*]t" and another employee who called a group of loans "quite possibly better than little beside leprosy spores."
Ultimately the 40 RMBS "sustained substantial losses," the DOJ said.
"With this resolution, UBS will pay for its conduct related to its underwriting and issuance of residential mortgage-backed securities," said Breon Peace, US 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," he added.
UBS characterized the case as a "legacy matter," adding in a statement that the funds have been provisioned for in earlier periods.