UBS to Shell Out $1.4B over Fraud Claims Related to 2008 Financial Crisis

The Swiss banking giant, UBS, has agreed to pay $1.44 billion in penalties to settle fraud claims for misleading investors in the United States with residential mortgage-backed securities (RMBS), which it had sold in the run-up to the 2008 financial crisis, the US Department of Justice (DOJ) said today (Monday).

The law enforcement agency in its complaint filed years ago had alleged that UBS defrauded investors in connection with the sale of 40 RMBS issued in 2006 and 2007 by “knowingly” making false and misleading statements about the characteristics of the loans underlying the securities.

“UBS was allegedly aware 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 in a statement. “Ultimately, the 40 RMBS sustained substantial losses.”

Furthermore, the agency noted that the settlement resolves the last case brought by its working groups dedicated to investigating the activities of banks and other financial actors during the crisis.

Previously, the department reached settlement agreements over similar fraud claims it had made against other major banks, including Nomura Holdings, the Royal Bank of Scotland (RBS), Merrill Lynch and Barclays. With the new settlement reached with UBS, banks, loan originators and rating agencies that faced the DOJ's probe have now paid over $36 billion in penalties, the justice department said.

However, the agency pointed out that the claims resolved through the settlement with UBS are only allegations, meaning that UBS did not make admit to any wrongdoings. In a statement, UBS confirmed the settlement, noting that it has “fully provisioned” the settlement in prior periods.

“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,” Breon Peace, the US Attorney for the Eastern District of New York, stated in the DOJ's statement, speaking about the importance of the settlement.

“The over $36 billion collected for conduct that fueled the 2008 financial crisis reflects the Department of Justice’s deep commitment to protecting financial markets, investors and the public against fraudulent conduct,” Peace added.