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Swiss firm agrees to pay $1.4 billion to settle DOJ suit over 2008 financial crisis

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Brett Rowland

(The Center Square) – UBS AG and several of its U.S.-based affiliates agreed to pay $1.435 billion in penalties to settle a U.S. Department of Justice civil suit over the Swiss bank's role in the run-up to the 2008 financial crisis.

The U.S. Department of Justice sued the Zurich-based company in 2018 alleging that UBS defrauded investors in connection with the sale of 40 residential mortgage-backed securities issued in 2006 and 2007. The complaint alleged the company knowingly made false and misleading statements to buyers of these securities relating to the characteristics of the underlying mortgage loans.

The settlement raises the total amount of civil penalties paid by banks, originators, and ratings agencies to more than $36 billion. It also resolves the final case brought by a Justice Department working group dedicated to investigating conduct of banks and other entities for their roles in creating and issuing residential mortgage-backed securities leading up to the 2008 financial crisis. 

"In the wake of the 2008 financial crisis, people all across the country experienced financial ruin and emotional devastation, and many are still recovering nearly 15 years later," Associate Attorney General Vanita Gupta said in a statement. 

UBS said the settlement resolves "all civil claims by the DOJ in connection with UBS's legacy [residential mortgage-backed securities] business in the U.S." The bank also said the settlement had "been fully provisioned in prior periods."

The Department of Justice suit alleged that contrary to UBS' representations in publicly filed offering documents, the company knew that significant numbers of the loans backing the residential mortgage-backed securities did not comply with loan underwriting guidelines that were designed to assess borrowers’ ability to repay. The complaint also alleged that UBS knew that 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. 

"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," U.S. Attorney Breon Peace for the Eastern District of New York said in a statement.