The National Credit Union Administration has sued UBS Securities LLC, a unit of UBS AG (UBS), alleging the firm violated securities laws by making misrepresentations in the sale of $1.1 billion of mortgage-backed securities to two now-defunct credit unions.
The NCUA filed the suit on Thursday in federal court in Kansas. The suit alleges the misrepresentations about the risks of the securities contributed to the collapse of U.S. Central Federal Credit Union of Lenexa, Kan., and Western Corporate Federal Credit Union in San Dimas, Calif.
The lawsuit alleges that mortgage originators "systemically abandoned" the underwriting standards outlined in the securities' offering documents, causing the two credit unions that bought them to believe they had a low risk of losses when in actuality the risks were high because the securities were "destined" to perform poorly.
The regulator previously filed similar lawsuits against divisions of J.P. Morgan Chase & Co. (JPM), Royal Bank of Scotland (RBS), Goldman Sachs Group Inc. (GS), and Wachovia, which was acquired by Wells Fargo & Co. (WFC).
The NCUA also has settled $170 million of claims lodged against units of Citigroup (C), Deutsche Bank AG (DB) and HSBC Holdings (HBC).
"NCUA has worked to restore stability to the credit union system," said Board Chairman Debbie Matz. "Now we intend to hold UBS Securities, as well as other responsible parties, accountable."
A spokeswoman for UBS declined to comment.
Write to Liz Moyer at liz.moyer@dowjones.com
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