UBS would like to make a mortgage-backed securities case—apparently linked to every other mortgage-backed securities case—go away.
The Securities and Exchange Commission's probe focuses on allegations that UBS defrauded investors in the sale of more than $748 million in notes tied to a collateralized-debt obligation the bank created in 2007. As part of the inquiry, the regulator is also looking at the role allegedly played by a former employee of the firm that managed the assets in the deal.
The investigation is in its late stages, people familiar with the matter said. Settlement talks with the bank are continuing, and no agreement appears imminent, the people said.
In this particular bit of (alleged) mortgage malfeasance, the starring role goes to one of the co-stars of the most fabulous CDO star, Fabulous Fabrice Tourre, who worked at the firm that thinks Paulson & Co. and Goldman Sachs really, really screwed it over on another deal.
The SEC also is probing the role of a former executive at bond insurer ACA Financial Guaranty Corp., which served as collateral manager on the deal, known as ACA ABS 2007-2.
The SEC sent the former ACA executive, Laura Schwartz, a so-called Wells notice last month indicating it is considering charges against her, according to a Financial Industry Regulatory Authority filing. According to the filing, the SEC said Ms. Schwartz is "cooperating with the investigation and denies any wrongful conduct…."
Ms. Schwartz served as senior managing director and head of asset management at the company's ACA Management arm before her 2007 departure. Her name also surfaced during one the SEC's biggest cases since the crisis: Its April 2010 complaint against Goldman Sachs Group Inc. and a former executive, Fabrice Tourre.
In that case, the SEC alleged that Goldman and Mr. Tourre had defrauded investors by selling a CDO whose underlying assets were handpicked by hedge-fund firm Paulson & Co. Paulson, which made billions of dollars on timely bets against subprime loans, had asked Goldman to create a CDO it could in turn short, profiting from its declining value.