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U.S. sues UBS, alleges crisis-era mortgage securities fraud

Reuters  |  NEW YORK 

By and Jonathan Stempel

(Reuters) - The on Thursday filed a civil fraud lawsuit accusing Group AG, Switzerland's largest bank, of defrauding investors in its sale of residential mortgage-backed securities leading up to the 2008-09 global financial crisis.

was accused of misleading investors about the quality of more than $41 billion of subprime and other risky mortgage loans backing 40 securities offerings in 2006 and 2007, the said in a complaint filed with the federal court in Brooklyn.

The lawsuit came after rejected a government proposal that it pay nearly $2 billion to settle, according to a person familiar with the talks who was not authorized to speak publicly about them.

While UBS was not a big originator of U.S. residential home loans, U.S. in Brooklyn said investors suffered "catastrophic losses" from the bank's failure to fully disclose the risks of mortgage securities it helped sell.

A UBS and a Justice Department declined to comment on the settlement talks, but the said it will fight the lawsuit.

"The DOJ's claims are not supported by the facts or the law," it said in a statement. "UBS is confident in its legal position and has been fully prepared for some time to defend itself in court."

U.S. officials are seeking unspecified fines against UBS under a allowing it to pursue penalties up to the amounts the gained or others lost from alleged misconduct.

The case is one of the last addressing alleged misconduct in the pooling and sale by large banks of mortgage securities that were a major cause of the financial crisis.

of America Corp, Plc, Citigroup Inc, Group AG, AG, Goldman Sachs Group Inc, HSBC Holdings Plc, JPMorgan Chase & Co, and previously settled.

'LYING IS OK'

U.S. officials faulted UBS for having a business culture that placed a higher priority on profits than full disclosure to investors, who were deprived of crucial information about the quality of the loans underlying the securities they bought.

Thursday's lawsuit quoted a UBS who in a 2006 instant message said "our crack due diligence effort is a joke," and a UBS mortgage employee who the same year complained to his bosses about the bank's ethics, including that "Lying is ok."

Like UBS, had also resisted settling prior to being sued by the Justice Department. That case ended in March with a $2 billion settlement.

UBS was among the banks hardest hit in the financial crisis, and has said it lost more than $45 billion after the U.S. housing market collapsed.

It was not immediately clear how much UBS has set aside for the U.S. case, though analysts said it might be more than half the 1.2 billion Swiss francs ($1.20 billion) it has reserved for so-called non-core legal risks.

UBS is also fighting charges by investigators in that it helped wealthy clients avoid taxes in that country, and turned down a 1.1 billion euro ($1.25 billion) settlement offer, judicial sources have said.

Shares of UBS closed up 1.3 percent in European trading earlier on Thursday. The U.S. lawsuit was made public after markets closed in that country.

The case is U.S. v et al, U.S. District Court, Eastern District of New York, No. 18-06369.

(Additional reporting by and in Zurich; editing by and Dan Grebler)

(This story has not been edited by Business Standard staff and is auto-generated from a syndicated feed.)

First Published: Fri, November 09 2018. 11:39 IST
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