UBS AG avoided going to trial today by mere hours by agreeing to settle a lawsuit in which it was alleged to have peddled “crap” and “vomit” securities during the financial crisis of 2007. Connecticut hedge fund Pursuit Partners claimed that UBS sold it asset-backed securities and failed to disclose that they were about to be downgraded.

Lawyers for UBS and the hedge fund announced in court yesterday that they came to terms and have resolved the suit.

The Stamford-based hedge fund brought suit against UBS in 2008, alleging that it sold the fund $40.5 million of collateralized debt obligations between July and October 2007 and knew the securities were on the precipice of downfall.

“UBS knew, at least as early as July 2007, based upon private communications by and between UBS and Moody’s, that Moody’s no longer believed that CDO notes of the type that UBS later sold to Pursuit deserved an ‘investment-grade’ rating,” the suit alleged.

To further support its claims, the suit referenced employee emails, in which the bank’s employees referred to the securities as “crap” and “vomit.”

“Kewl,” wrote UBS trader Evan Malik to Hugh Corcoran in an August 2007 email that began with the bankers talking over company email about wine purchases. “Sold some more crap to pursuit.”

In a September 2007 email, UBS employee Tim Goodell said to Jared Menzel that the securities were “vomit.”

Settlement terms have not been made available.

The case is Pursuit Partners LLC v. UBS AG, UWY-CV-08-40331-48-S, Connecticut Superior Court (Waterbury).

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