On May 6, monoline insurer Assured Guaranty Ltd. announced a $358 million settlement with UBS and its affiliates stemming from losses on residential mortgage-backed securities that were issued, sponsored or underwriten by UBS. Assured sued UBS in 2012 in federal court in New York alleging material misrepresentations and omissions concerning the quality of loans underlying the securitizations at issue that it insured. The settlement terminates all pending RMBS litigation between UBS and Assured. Under the terms of the settlement, the parties will also enter into a collateralized loss-sharing reinsurance agreement whereby UBS will compensate Assured for 85 percent of Assured’s future losses on the securitizations at issue in the litigation. Press Release. SEC Filing.
UBS
New York State Court Dismisses RMBS Fraud Suit Against UBS
On April 5, New York Supreme Court Justice Shirley Werner Kornreich dismissed with prejudice a suit brought by six Loreley Financing entities against various UBS entities. Loreley alleged fraud stemming from UBS’s issuance of $331 million of CDOs, in which Loreley was an investor, that were comprised of RMBS and credit default swaps. Loreley brought claims for common law fraud, conspiracy to defraud, aiding and abetting fraud, rescission, fraudulent conveyance and unjust enrichment. Justice Kornreich held the allegations in the Complaint failed to show how UBS caused the CDOs to fail and therefore failed to state a claim, including for fraud. Decision.
Second Circuit Affirms Denial of UBS’s Motion to Dismiss FHFA Complaint
On April 5, the United States Court of Appeals for the Second Circuit affirmed the decision of the district court denying UBS’s motion to dismiss the complaint brought by the FHFA. FHFA sued UBS as conservator of Fannie Mae and Freddie Mac, alleging fraud and misrepresentation in connection with the sale of $6.4 billion in RMBS. The court held that the action was timely because it commenced within three years after FHFA was appointed conservator of Freddie Mac and Fannie Mae. The court also held that FHFA had standing to bring the action, rejecting UBS’s argument that the appointments of the FHFA’s Acting Directors were unconstitutional because the Directors had not been confirmed by the Senate. Decision.
Federal Court Narrows FDIC Lawsuit Against Countrywide
On January 3, Judge Mariana R. Pfaelzer of the Central District of California ruled on motions to dismiss filed by defendants Countrywide, Bank of America, and UBS in an action brought against them by the Federal Deposit Insurance Corp. (FDIC) concerning $108.4 million in residential mortgage-backed securities. The Court’s order concerned the FDIC’s claims under Section 11-51-501(1)(b) of the Colorado Securities Act. The Court granted the motions with respect to alleged misstatements pertaining to owner-occupancy data and additional liens because the Offering Documents indicated that this data was self-reported by borrowers. It also granted the motion with respect to successor liability claims asserted against Bank of America. The Court denied the motions with respect to alleged misstatements pertaining to loan underwriting standards and appraisals. The Court also denied the motions with respect to defendants’ argument that the FDIC did not adequately allege reliance and causation, holding that those are not elements of the FDIC’s claim and thus not required to be pled. Opinion.
UBS Fined £160 Million for Significant Failings in Relation to LIBOR and EURIBOR
On December 19, 2012, the FSA announced that it had fined UBS £160 million for misconduct relating to LIBOR and EURIBOR. The FSA’s final notice found that the misconduct was extensive and widespread, occurred in various locations around the world including Japan, Switzerland, the UK and the USA and, between 1 January 2005 and 31 December 2010, included:
- The adjustment of UBS LIBOR and EURIBOR submissions to benefit UBS traders’ trading positions;
- Colluding with interdealer brokers to manipulate the Japanese Yen LIBOR submissions of panel banks to the benefit of UBS traders; and
Adopting LIBOR submissions directives whose primary purpose was to protect UBS’s reputation.
Court Limits Assured Guaranty’s Claims Against UBS
On August 15, Judge Harold Baer, Jr. of the federal district court for the Southern District of New York granted in part and denied in part UBS’s motion to dismiss claims asserted by Assured Guaranty Municipal Corporation in connection with three RMBS securitizations insured by Assured Guaranty. Judge Baer held that Assured Guaranty did not have the contractual right to bring claims for breach of the relevant Pooling and Servicing Agreements’ repurchase remedies and that its claims for a declaration that UBS had failed to comply with its repurchase obligations should be dismissed as duplicative of its claim for breach of those obligations. The court permitted Assured Guaranty to proceed, however, with other contract claims including its claim for breach of certain representations and warranties in the PSAs, concluding that the PSAs’ “no-action clauses” do not apply to Assured Guaranty as insurer and that a contractual “sole remedy” provision “may not apply to Assured,” a factual issue to be determined at a later stage of the case. Decision.
DZ Bank AG Sues UBS in New York State Court In Connection With $160 Million of RMBS
On July 25, Deutsche Zentral-Genossenschaftsbank AG (“DZ Bank”) filed a summons with notice against several UBS entities in the Supreme Court of the State of New York. DZ Bank alleges that UBS misrepresented the underwriting standards used to originate mortgage loans underlying RMBS that DZ Bank purchased for more than $160 million. DZ Bank also alleges that UBS’s offering materials misrepresented information about the legal validity of the trusts and the transfer of loans into the trusts. DZ Bank brings claims for common-law fraud, fraudulent inducement, negligent misrepresentation, aiding and abetting fraud, declaratory judgment, and contract claims, including rescission, restitution, and mutual mistake. Summons with Notice.
Upper Tribunal Upholds FSA Decision to Ban and Fine Former UBS Advisers
The Upper Tribunal (Tax and Chancery Chamber) has upheld an FSA decision to ban and fine two former UBS advisers in relation to an unauthorised trading scheme. The FSA were directed to fine Sachin Karpe £1.25 million and Laila Karan £75,000 and ban them for performing any role in regulated financial services for failing to act with integrity, in breach of Principle 1 of the FSA’s Statements of Principles and Code of Conduct for Approved Persons and for not being fit and proper persons as they lacked honesty and integrity.
Mr. Karpe was Desk Head of the Asia II Desk at UBS AG’s international wealth management business in London. He had carried out substantial authorised trading and made unauthorised transfers and loans between client accounts to conceal the losses. Mr. Karpe was Ms. Karan’s line manager. She assisted him in concealing the unauthorised activity and prepared false attendance notes. UBS paid compensation of over US $42 million to 21 customers who has suffered substantial losses as a result of the scheme. Decision for Mr. Karpe. Decision for Ms Karan.
Manhattan Federal Judge Denies UBS’s Motion to Dismiss FHFA Suit
On May 4, the Honorable Denise Cote of the Southern District of New York denied UBS Americas Inc.’s (“UBS”) motion to dismiss the Federal Housing Finance Agency’s (“FHFA”) complaint against it for violations of the Securities Act. FHFA alleges that UBS fraudulently induced Fannie Mae and Freddie Mac into purchasing $6.4 billion worth of mortgage-backed securities from 22 different securitizations by misrepresenting the quality of the mortgage loans and that the mortgage loans complied with the applicable underwriting guidelines. Judge Cote held that the complaint was timely and not barred by the Securities Act’s Statute of Repose, as well as that FHFA had standing to bring the action. The Court also held that the complaint stated a claim under the Securities Act because FHFA had alleged actionable misrepresentations in the offering documents concerning LTV ratios, owner-occupancy status and compliance with underwriting guidelines. Judge Cote did, however, dismiss FHFA’s claims for negligent misrepresentation, concluding that because both parties were sophisticated, no special relationship existed that would support such a claim. Decision.
California Federal Court Partially Dismisses RMBS Claims In Countrywide MDL Action
On April 16, 2012, Judge Mariana R. Pfaelzer of the Central District of California dismissed in part an RMBS action brought by Massachusetts Mutual Life Insurance Co. (“MassMutual”) against Countrywide, JPMorgan, Deutsche Bank, UBS, and various individual defendants. This case, which asserts claims under the Massachusetts Uniform Securities Act (“MUSA”), was transferred to the Countrywide MDL for pre-trial proceedings. In addressing defendants’ initial motions to dismiss on the issues of timeliness, standing and jurisdiction, Judge Pfaelzer found that the court lacked personal jurisdiction over the individual defendants who moved on this ground and dismissed all claims against them with prejudice. Judge Pfaelzer also found that only the Underwriter Defendants could be held liable as a seller under the MUSA, and dismissed the MUSA claims against the other defendants with prejudice. Judge Pfaelzer declined to dismiss the remaining claims based on the statute of limitations. Decision.