US files fraud lawsuit against UBS

Logo of UBS bank on the building of its branch on Park Avenue in New York City Martin Ruetschi

The United States government has filed an expected civil fraud lawsuit accusing UBS, Switzerland’s largest bank, of defrauding investors in its sale of residential mortgage-backed securities leading up to the 2008-09 global financial crisis.

The move, which came late on ThursdayExternal link, Swiss time, had been anticipated. UBS said it would “vigorously” contest the lawsuit.

UBS is accused of misleading investors about the quality of more than $41 billion (CHF41 billion) of subprime and other risky mortgage loans backing 40 securities offerings in 2006 and 2007, the Department of Justice (DOJ) said in a complaint filed with the federal court in Brooklyn.

While UBS was not a big originator of US residential home loans, US Attorney Richard Donoghue in Brooklyn said investors suffered “catastrophic losses” from the bank’s failure to fully disclose the risks of mortgage securities it helped sell, Reuters reported.

UBS statement

In a statement on FridayExternal link, which updated a communiqué issued ahead of the expected announcement, UBS said the DOJ would seek “unspecified monetary civil penalties” dating back to 2006 and 2007. 

The Swiss bank said: “The DOJ’s claims are not supported by the facts or the law. UBS will contest the 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.” 

It went on to say that it intended to rely on certain “significant facts” in its defence and that it expected these facts to be “substantiated in the course of the proceedings”.

This included that “UBS suffered massive losses on US mortgage-related assets, including the RMBS [residential mortgage-backed securities] cited in the complaint, negating any inference of fraud”.

Numerous banks have already paid out billions of dollars in penalties following civil cases brought by the DOJ under the Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA). 

After the financial crisis, banks were accused of misleading investors concerning loans underlying the mortgage-backed securities they sold, with loans made to borrowers who were unable to repay them and based on inflated home evaluations.