The U.S. government on Thursday filed a civil fraud lawsuit accusing UBS Group, Switzerland's largest bank, of defrauding investors in its sale of residential mortgage-backed securities leading up to the 2008-2009 global financial crisis.
UBS was accused of misleading investors about the quality of more than $41 billion of subprime and other risky mortgage loans backing 40 securities offerings in 2006 and 2007, the Department of Justice said in a complaint filed with the federal court in Brooklyn.
The lawsuit came after UBS rejected a government proposal that it pay nearly $2 billion to settle, according to a person familiar with the talks who was not authorized to speak publicly about them.
While UBS was not a big originator of U.S. residential home loans, U.S. Attorney Richard Donoghue in Brooklyn said investors suffered "catastrophic losses" from the bank's failure to fully disclose the risks of mortgage securities it helped sell.
A UBS spokesman and a Justice Department spokeswoman declined to comment on the settlement talks, but the bank said it will fight the lawsuit.
"The DOJ's claims are not supported by the facts or the law," it said in a statement. "UBS is confident in its legal position and has been fully prepared for some time to defend itself in court."
U.S. officials are seeking unspecified fines against UBS under a federal law allowing it to pursue penalties up to the amounts the bank gained or others lost from alleged misconduct.
The case is one of the last addressing alleged misconduct in the pooling and sale by large banks of mortgage securities that were a major cause of the financial crisis.
Bank of America, Barclays, Citigroup, Credit Suisse, Deutsche Bank, Goldman Sachs, HSBC, JPMorgan Chase, Morgan Stanley and Royal Bank of Scotland previously settled.