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US regulators have filed a lawsuit against Swiss banking giant UBS, accusing it of misrepresenting the risk associated with mortgage-backed securities it sold to two federal credit unions.
The two credit unions failed after paying $1.1 billion for the securities, which they believed to be safe bets but in fact carried “substantial risk,” the National Credit Union Administration, which filed the suit, said Thursday.
“The strength of our entire financial system relies on trust and accountability,” NCUA Board Chairman Debbie Matz said in a statement.
“As our complaint makes clear, UBS Securities violated this trust, which contributed to the collapse of two corporate credit unions and the resulting crisis in the credit union industry.”
UBS could not immediately be reached for comment.
The two credit unions — the US Central Federal Credit Union (US Central) and Western Corporate Federal Credit Union (WesCorp) — provide a number of services to retail credit unions, which serve consumers.
NCUA said it has filed similar actions against JP Morgan Securities, RBS Securities, Goldman Sachs and Wachovia, and has settled claims worth more than $170 million with Citigroup, Deutsche Bank Securities, and HSBC.
The widespread marketing of risky mortgage-backed securities was one of the main causes of the 2008 financial crisis.