by Ben Vernia | November 9th, 2018
On November 8, the Department of Justice announced that it had filed suit against UBS, alleging that the banking giant violated the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA), in its sale of residential mortgage-backed securities. The Government seeks $26 million in civil penalties. According to DOJ’s press release:
Earlier today, in federal court for the Eastern District of New York, the United States filed a civil complaint against UBS AG and several of its United States affiliates (together, “UBS”), alleging that UBS defrauded investors throughout the United States and the world in connection with its sale of residential mortgage-backed securities (RMBS) from 2006 through 2007.
Principal Deputy Associate Attorney General Jesse Panuccio, United States Attorney Richard P. Donoghue for the Eastern District of New York, United States Attorney Byung J. Pak for the Northern District of Georgia, and Associate Inspector General Jennifer Byrne, Federal Housing Finance Agency-Office of. Inspector General (FHFA-OIG) announced the filing.
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The complaint alleges that UBS’ actions violated the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA), based on mail fraud, wire fraud, bank fraud, and other misconduct. FIRREA authorizes the Attorney General to seek civil penalties up to the amount of the gain derived from the violation, or the losses suffered by persons other than the violator resulting from the violation.As detailed in the complaint, from 2006 through 2007, UBS misled investors about the quality of billions of dollars in subprime and Alt-A mortgage loans backing 40 RMBS deals. Specifically, in publicly-filed offering documents, UBS knowingly misrepresented key characteristics of the loans, thereby concealing the fact that the loans were much riskier and much more likely to default than UBS represented. Ultimately, the 40 RMBS sustained catastrophic losses.
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