USB agreed to pay $1.435 billion in penalties to settle a civil action filed in November 2018 alleging misconduct related to UBS’ underwriting and issuance of residential mortgage-backed securities (RMBS) in 2006 and 2007. This settlement resolves the last case brought by a Department of Justice (DOJ) Working Group dedicated to investigating the conduct of banks and other entities for their roles in creating and issuing RMBS leading up to the 2008 financial crisis.
The United States filed a complaint alleging that UBS defrauded investors in connection with the sale of 40 RMBS. The complaint alleged UBS knowingly made false and misleading statements to buyers of these securities relating to the characteristics of the mortgage loans underlying the RMBS in violation of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989, 12 U.S.C. § 1833a (FIRREA). The FIRREA claims were based on alleged violations of the mail, wire, and bank fraud statutes, as well as 18 U.S.C. §§ 1005 and 1014.
The government’s complaint alleged that contrary to UBS’ representations in publicly filed offering documents, UBS knew a 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 complaint further asserted UBS knew the property values associated with a significant number of the securitized loans were unsupported, and that significant numbers of the loans had not been originated in accordance with consumer protection laws. 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. Ultimately, the 40 RMBS sustained substantial losses.
With the UBS settlement, the DOJ has collected more than $36 billion in civil penalties from 18 major domestic and foreign banks, originators, and rating agencies for their alleged conduct in connection with mortgages securitized in failed RMBS leading up to the 2008 financial crisis. These resolutions include settlements with 18 banks, mortgage originators, and rating agencies.
Collectively, these matters were handled by 11 U.S. Attorney’s Offices and the Civil Division of the DOJ, in conjunction with the RMBS Working Group. The RMBS Working Group was a federal and state law enforcement effort focused on investigating fraud and abuse in the RMBS market that led to the financial crisis. Formed in 2012, the RMBS Working Group brought together more than 200 attorneys, investigators, analysts and staff from dozens of state and federal agencies, including the FHFA Office of Inspector General, the Department of Housing and Urban Development, the Office of the Special Inspector General for the Troubled Asset Relief Program, the Securities and Exchange Commission and the FBI, to investigate financial fraud in RMBS.
The UBS case is the last RMBS Working Group case resolved by the U.S. Attorney’s Office of the Eastern District of New York. In six cases, the office and its partners recovered over $11 billion in penalties.
The matter involving UBS was handled by the United States Attorneys’ Offices for the Eastern District of New York and the Northern District of Georgia, with the support of agents from FHFA-OIG. Assistant U.S. Attorneys Bonni Perlin, Michael Castiglione, Richard Hayes, Edward Newman and Melanie Speight from the Eastern District of New York, and Austin Hall, Andres Sandoval, and former Assistant U.S. Attorney Armen Adzhemyan from the Northern District of Georgia were in charge of the litigation.