Loreley Financing, a group of special-purposes entities based in Jersey in the Channel Islands, brought the lawsuit in 2012 over four CDOs arranged by UBS. The CDOs were comprised of residential mortgage-backed securities and credit default swaps.
When the housing market crashed, Loreley suffered huge losses and claimed UBS had misrepresented the CDOs, which it bought in 2006 and 2007.
Last year, a New York state judge tossed the lawsuit against the Swiss bank, saying in part that Loreley had not shown the alleged misrepresentations caused the losses.
But New York's Appellate Division, First Department reinstated the fraud claim, citing its recent decisions in similar lawsuits Loreley had brought against Citigroup Inc (>> Citigroup Inc) and Bank of America Corp's (>> Bank of America Corp) Merrill Lynch unit.
"The First Department's decision is consistent with established case law holding that loss causation is an issue for trial," Sheron Korpus, a lawyer for Loreley, said in a phone interview.
Richard Rosen, a lawyer for UBS, declined to comment.
The case is Loreley Financing (Jersey) No. 4 Ltd et al v UBS Ltd et al, New York State Supreme Court, Appellate Division, 1st Department, Nos. 13636, 13636A, 13636B, 13637.
(Reporting by Karen Freifeld; additional reporting by Jonathan Stempel in New York; Editing by Richard Chang)
By Karen Freifeld