SAN FRANCISCO (CN) – Bank of the West claims it lost $95 million in a scheme in which UBS AG and affiliates dumped $2 billion of toxic subprime mortgages on unsuspecting financial institutions.
UBS portrayed a collateralized debt obligation fund as investment-grade, but sold its own subprime assets to the fund at inflated prices, according to the Superior Court complaint. The defendants – UBS AG, UBS Securities, and UBS Limited – then allegedly used their senior voting rights in the fund to liquidate the fund on the basis of a highly questionable default event, thus reducing their subprime exposure.
“UBS designed this CDO, known as TABS 2007-7, to serve its own undisclosed purpose – to fraudulently induce other financial institutions to put up hundreds of millions of dollars to unwittingly insure UBS against its own subprime investment losses, which UBS knew internally were already beginning to happen,” according to the complaint.
Also sued is James Gibbons a senior vice president of UBS Financial Services in Orange County, California. He allegedly promoted the TABS scheme to the Bank of the West.
UBS is a Swiss bank based in Zurich.
Bank of the West seeks damages for fraud, misrepresentation, bad faith and breach of contract. It plaintiff is represented by Kenneth Chiate with Quinn Emanuel Urquhart.