A UBS AG employee referred to asset-backed securities sold by the Swiss bank as “vomit” in an internal e-mail in 2007, according to a fraud lawsuit brought by hedge fund Pursuit Partners LLC.
A Connecticut judge cited the e-mail in ruling that UBS must post a $35.6 million bond because Pursuit has enough evidence to pursue a claim that the bank failed to disclose that its collateralized debt obligations faced rating downgrades.
“OK still have this vomit?” a UBS employee wrote in September 2007 to a director, referring to a CDO with an investment-grade rating, according to the ruling.
“Pursuit has established probable cause to sustain the validity of a claim that the UBS defendants were in possession of material nonpublic information regarding imminent ratings downgrades on the notes it sold to the plaintiffs, information UBS withheld from the plaintiffs,” Superior Court Judge John Blawie wrote in Stamford, Conn.
The judge allowed the lawsuit to proceed without ruling on the merits of the case. Zurich-based UBS, the largest Swiss bank, sold Pursuit $40.5 million worth of CDOs between July and October 2007, just as the market for such securities was declining.
