UBS is facing federal charges that it defrauded investors in its residential mortgage-backed securities strategies in the run-up to the global financial crisis of 2008-09.
The U.S. Justice Department, in a lawsuit filed Thursday in U.S. District Court in New York, claimed UBS from 2005 to 2007 sold "tens of billions of dollars of residential mortgage-backed securities, in which it knowingly and repeatedly made false and fraudulent statements to investors about the characteristics of the loans backing those trusts," according to court documents.
UBS securitized more than $41 billion of mortgage loans in the investments, "which proved to be catastrophic failures," according to the lawsuit. The company "misrepresented key characteristics of the loans it securitized ... in order to conceal the fact that these loans were much riskier and much more likely to default than UBS represented to investors."
In a separate news release, Jesse Panuccio, principal deputy associate attorney general, said the alleged actions "contributed to the 2008 financial crisis."
UBS in a news release denied the lawsuit's allegations, saying the claims "are not supported by the facts or the law. UBS will contest the complaint vigorously in the interest of its shareholders."
The lawsuit comes in a year in which several banks agreed to settle Justice Department charges of misrepresenting RMBS investments. Among them, Royal Bank of Scotland agreed to pay $4.9 billion; Wells Fargo, $2.09 billion; and Barclays, $2 billion.