UBS is denied request to suspend $6.4 bln federal lawsuit

By Grant McCool

NEW YORK, Oct 1 (Reuters) - UBS AG on Monday lost a bid to suspend a federal regulator's lawsuit accusing it of misleading Fannie Mae and Freddie Mac into buying billions of dollars of risky mortgage debt.

A U.S. appeals court, in a one-sentence ruling, denied the request by UBS to stay proceedings in federal court in Manhattan while it appealed a judge's order that the Federal Housing Finance Agency may pursue claims against the Swiss bank.

On May 4, U.S. District Judge Denise Cote ruled that the FHFA could continue its case accusing UBS of breaking federal securities laws by misleading Fannie Mae and Freddie Mac into buying $6.4 billion of subprime and other residential mortgage-backed securities.

A spokeswoman for UBS had no immediate comment on the order by the 2nd U.S. Circuit Court of Appeals.

The case is one of 17 that the FHFA filed last year against banks over losses suffered by the housing finance giants on approximately $200 billion of mortgage debt. Losses on the securities were a major factor in the 2008 financial crises.

Judge Cote's rejection in May of UBS's motion to dismiss the case was the first in the litigation, and her reasoning may be applied to other defendants.

Bank of America Corp , Barclays Plc , Citigroup Inc , Goldman Sachs Group Inc , JPMorgan Chase & Co and Royal Bank of Scotland Group Plc are among the defendants.

The cases are Federal Housing Finance Agency v. UBS Americas Inc et al, U.S. District Court, Southern District of New York, No. 11-05201 and FHFA v UBS in the 2nd U.S. Circuit Court of Appeals, No. 12-3207

(Reporting by Grant McCool; Editing by Tim Dobbyn)

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Keywords: USA FHFA/UBS