WASHINGTON, Aug. 6 (UPI) -- UBS AG agreed to pay $50 million to settle charges the Swiss banking giant misled investors, the U.S. Securities and Exchange Commission said Tuesday.
The bank's securities division unit kept secret that it retained $23.6 million in upfront cash it received while acquiring collateral for a collateralized debt obligation in 2007, the regulatory agency said.
A collateralized debt obligation, or CDO, is a complex type of asset-backed security that pays investors in a structured sequence, based on the cash flow the CDO collects from the pool of bonds or other assets it owns.
Around the time of UBS' alleged misrepresentation CDO collateral was dominated not by loans, but by subprime securities, leading up to the subprime mortgage crisis.
Rather than transfer the upfront $23.6 million to the CDO when the collateral was transferred, UBS retained it in addition to its disclosed fee of $10.8 million, the SEC said.
"UBS kept $23.6 million that under the terms of the deal should have gone to the CDO for the benefit of its investors," George S. Canellos, co-director of the SEC's Enforcement Division, said in a statement.
"In doing so, UBS misrepresented the nature of the CDO's collateral and rendered false the disclosures about how that collateral was acquired," he said.
UBS agreed to give up the $23.6 million in upfront payments and the $10.8 million fee and said it would pay $9.7 million in interest and a $5.7 million penalty, the SEC said. The amounts add up to $49.8 million.
The bank, based in Basel and Zurich, did not admit or deny wrongdoing.
"UBS is pleased to put this investigation behind us, which involved a legacy business that was closed almost five years ago," UBS spokesman Megan Stinson said in a statement.
"We believe this settlement marks the conclusion of all SEC investigations relating to UBS' structuring and marketing of CDOs backed by residential mortgage-backed securities," she said.
