UBS agreed to pay US$49.8 million to settle US Securities and Exchange Commission charges it misled investors about a risky mortgage bond transaction that soured during the financial crisis, the regulator said on Tuesday.
The payment resolves a probe into a collateralized debt obligation (CDO) that the Swiss bank created in the middle of 2007, and which the SEC said caused US$130 million of losses for outside investors when it was liquidated the following June.
UBS’ settlement is smaller than accords by rival banks such as Goldman Sachs and Citigroup to settle recent SEC probes into CDOs, which are typically backed by mortgages and other loans and sold in pieces to investors.
Those banks, like UBS, did not admit wrongdoing in agreeing to settle.
The SEC said UBS kept US$23.6 million of cash it had received upfront while acquiring credit default swaps as collateral for the ACA ABS 2007-02 CDO, on top of a US$10.8 million disclosed fee.
According to the regulator, UBS violated securities law by failing to disclose the upfront cash, and inaccurately representing its cost of acquiring the collateral.
One senior UBS banker said “let’s see how much money we can draw out of the deal” early on in the structuring, the SEC said.