UBS to Pay $1.44 Billion to Settle Financial-Crisis Fraud Case

The Swiss-banking giant UBS agreed on Monday to pay $1.4 billion to settle U.S. claims that it misrepresented bonds backed by mortgages sold in the years leading up to the 2008 financial crisis, a sign that the legacy of the turmoil that engulfed the global financial system continues to haunt Wall Street.

The settlement with UBS is the last action brought by a Justice Department task force that was set up in 2012, during the Obama administration. It investigated the role of big banks and other financial firms in selling flawed and predatory mortgage products that contributed to the collapse of the U.S. housing market, federal prosecutors in Brooklyn said in a news release.

“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,” said Breon Peace, U.S. attorney for the Eastern District of New York.

UBS said in a statement on its website that it had reached the settlement with federal prosecutors to resolve “a legacy matter,” adding that the money had already been accounted for in previous financial statements.

In settling with UBS, U.S. prosecutors agreed to dismiss a lawsuit it filed against the bank in 2018. The agreement brings the total fines and penalties collected by the government task force to more than $36 billion. Some of that money has gone to providing mortgage relief to homeowners hurt by the financial crisis.

In the crisis, which began to abate in 2012, banks foreclosed on more than six million mortgages, and millions of other homeowners saw the value of their homes plummet for years.

At its peak, the Justice Department task force had more than 200 lawyers working for it. The group also relied on personnel from a number of federal housing agencies, the Securities and Exchange Commission and the Federal Bureau of Investigation.

Regarding UBS, federal prosecutors said the bank defrauded bond investors who had sunk money into 40 so-called residential mortgage-backed securities that UBS had sold in 2006 and 2007. The lawsuit filed by prosecutors claimed UBS “knowingly made false and misleading statements” to investors about the quality of the mortgages that were packaged into those bonds.

The bonds sold by UBS eventually lost most of their value when the housing market crashed and homeowners were not able to keep up with their mortgage payments.