In a pivotal moment that underscores the enduring consequences of the 2008 financial crisis, UBS, the Swiss-banking giant, has agreed to pay a substantial $1.4 billion settlement to resolve U.S. claims related to misrepresented mortgage-backed bonds.
This settlement signifies the culmination of a decade-long investigation led by a Justice Department task force initiated during the Obama administration. The probe aimed to address the role of major banks and financial institutions in promoting flawed and predatory mortgage products that played a role in the U.S. housing market collapse.
The settlement with UBS holds particular significance as it brings closure to the last legal action initiated by the Justice Department task force established in 2012. Federal prosecutors in Brooklyn announced that UBS had misrepresented bonds backed by mortgages sold in the years leading up to the financial crisis, contributing to the turmoil that engulfed the global financial system.
The US attorney for the Eastern District of New York, Breon Peace, highlighted the weight of the civil penalty in this case, emphasizing its role as a deterrent for financial market participants who might consider profiting unlawfully through fraudulent activities.
Peace stated, “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.”
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A Resolution to a Decade-Long Investigation
UBS issued a statement on its website acknowledging the settlement with federal prosecutors, referring to it as a resolution to a “legacy matter.” The bank asserted that the funds for the settlement had already been accounted for in previous financial statements. As part of the settlement, US prosecutors agreed to dismiss a lawsuit filed against UBS in 2018.
This agreement marks a significant milestone for the US government task force, which has now amassed over $36 billion in fines and penalties. Some of these funds have been directed towards providing mortgage relief to homeowners who were adversely affected by the financial crisis.
At the height of the crisis, millions of homeowners experienced foreclosures and plummeting home values, causing widespread financial instability. The task force, comprising over 200 lawyers and personnel from various federal agencies, including the Federal Bureau of Investigation and the Securities and Exchange Commission, worked diligently to scrutinize the practices of major financial players.
In the case of UBS, federal prosecutors assert that the bank engaged in fraudulent activities related to residential mortgage-backed securities sold in 2006 and 2007. Allegedly, UBS knowingly made false and misleading statements to investors regarding the quality of the underlying mortgages within those bonds.
Ultimately, these bonds suffered substantial losses as the housing market crashed and homeowners struggled to meet mortgage payments.
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Source: NY Times
