Swiss bank UBS has agreed to pay $1.4 billion in civil penalties to settle a case involving fraud and misconduct related to its offering of residential mortgage-backed securities during the 2006-2007 period leading up to the global financial crisis. This settlement is the result of the last case brought by the U.S. Department of Justice against major financial institutions for making misleading statements to purchasers of these securities. The cumulative settlements across these cases have now reached $36 billion. UBS characterizes this agreement as addressing a “legacy matter,” with the allegations dating back to when the bank originated $1.5 billion in residential mortgages between 2005 and 2007. The bank ceased issuing residential mortgage-backed securities in 2007. During the pre-financial crisis years, investment banks packaged and sold bundles of mortgages to institutional buyers. These securities were assigned ratings and grades based on quality, with different tranches of mortgages supposedly mitigating the risk of a complete default. However, the actual quality of the underlying mortgages often did not match their assigned ratings.

UBS, along with other banks that settled with the Justice Department, was aware that the mortgages underlying the mortgage-backed securities did not meet underwriting standards. Despite this, UBS sold these products to clients, generating financial success. The Justice Department alleges that UBS conducted extensive due diligence on the underlying loans prior to creating and selling the securities. UBS had previously argued that it fulfilled its obligations to its clients, who were described as highly sophisticated investors and some of the world’s largest financial institutions. This settlement concludes the Justice Department’s efforts against 18 financial institutions, including Bank of America, Citigroup, General Electric, Goldman Sachs, JPMorgan, and Wells Fargo, over issues related to mortgage-backed securities. Even the defunct Swiss bank Credit Suisse, now owned by UBS, reached a settlement with the Justice Department over misconduct connected to similar offerings.