UBS Securities was accused of violating securities laws while structuring and marketing a collateralized debt obligation, or CDO, during a 2008 mortgage bond transaction. Regulators said it failed to disclose that it retained $23.6 million in upfront cash in the course of acquiring collateral for the CDO.
The SEC said that instead of transferring that money to the CDO, UBS retained the full amount in addition to a disclosed fee of $10.8 million.
UBS then went on to market the deal without informing investors that it had retained the upfront payments.
“UBS kept $23.6 million that under the terms of the deal should have gone to the CDO for the benefit of its investors,” said George S. Canellos, co-director of the SEC’s enforcement division. “In doing so, UBS misrepresented the nature of the CDO’s collateral and rendered false the disclosures about how that collateral was acquired.”
Under the terms of the settlement, UBS did not admit any wrongdoing.
[Updated, 10:32 a.m. PDT Aug. 6: Collateralized debt obligations are complex securities, which during the boom years often were backed by a toxic stew of some of the riskiest pieces of previous mortgage-bond deals.
Tuesday's announcement of the UBS settlement comes a week after Bank of America Corp. said in its second-quarter financial report to the SEC that the agency's staff is considering recommending that civil charges related to CDOs be brought against the bank’s Merrill Lynch unit, the brokerage that was near collapse when Bank of America acquired it as the financial crisis set in.]