(Reuters) - UBS AG <UBSN.VX> is in talks with the Securities and Exchange Commission to settle allegations the bank defrauded investors in a mortgage bond deal that soured during the financial crisis, the Wall Street Journal reported, citing people familiar with the matter.
The SEC's investigation focuses on allegations UBS defrauded investors in the sale of more than $748 million (491 million pounds) in notes tied to a collateralized debt obligation the bank created in 2007, the paper reported.
UBS disclosed in a regulatory filing this month that it is in discussions with the SEC concerning the structuring and underwriting of one CDO in 2007, the paper said.
Packaging collateralized debt obligations was very profitable at the height of the housing market boom, but the practice was later blamed by regulators for contributing to the credit market crisis.
The SEC is also looking at the role played by a former executive at bond insurer ACA Financial Guaranty Corp <ACAFG.UL>, which served as collateral manager on the deal, the paper said.
Robin Alperstein, an attorney for the former ACA executive, Laura Schwartz, was quoted as saying Schwartz denies any wrongful conduct and is cooperating with the investigation.
An ACA spokesman declined to comment to the paper.
(Reporting by Susan Kelly in Chicago; Editing by Vicki Allen)