UBS settles RMBS misconduct claims and agrees to $1.435B penalty

August 15, 2023 Rob Abruzzese

U.S. Attorney for the EDNY Breon Peace.
Photo: Andrew Harnik/AP.

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UBS AG, together with its affiliated U.S. entities, agreed on Monday to pay $1.435 billion in penalties, settling a long-standing civil action stemming from their involvement in the residential mortgage-backed securities (RMBS) issued during 2006 and 2007.

Filed in November 2018, the complaint accused UBS of misleading investors regarding 40 RMBS issued within the specified period. These RMBSs, it was claimed, were backed by mortgage loans that did not meet standard underwriting guidelines.

The complaint further detailed that UBS was aware of the lack of compliance with these guidelines and had knowledge that a large number of the securitized loans had unsupported property values and failed to adhere to consumer protection laws.

“With this resolution, UBS will pay for its conduct related to its underwriting and issuance of residential mortgage-backed securities,” said Breon Peace, the U.S. attorney for the Eastern District of New York. “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.

“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.

The settlement, announced by key officials from various U.S. departments and agencies, brings the total penalties paid by banks, originators, and rating agencies for similar securities to an impressive $36 billion.

Vanita Gupta, United States associate attorney general, highlighted the profound impact of the 2008 financial crisis on Americans, many of whom continue to grapple with its aftermath. The settlement serves as a tangible demonstration of the department’s unwavering commitment to justice, she noted.

The RMBS Working Group, a collaborative federal and state law enforcement initiative formed in 2012, played an instrumental role in probing fraud in the RMBS market leading to the 2008 financial downturn. UBS’s case marks the last of the RMBS Working Group’s settlements spearheaded by the U.S. Attorney’s Office of the Eastern District of New York.