The Securities and Exchange Commission (SEC) announced today that UBS (NYSE:UBS) has agreed to pay a $50 million fine for taking a cut of cash that should've gone to collateralized debt investors.

According to the SEC, UBS failed to disclose $23.6 million in up-front payments that it received in the process of acquiring credit default swaps as collateral, putting the bank's overall gains at $34.4 million when its disclosed fee is added in.

"UBS kept $23.6 million that under the terms of the deal should have gone to the CDO [Collateralized Debt Obligation] for the benefit of its investors," said Co-Director of the SEC's Division of Enforcement George Canellos in a statement. "In doing so, UBS misrepresented the nature of the CDO's collateral and rendered false the disclosures about how that collateral was acquired."

According to the SEC's investigation, the head of UBS' Collateralized Debt Obligation Group stated, "Let's see how much money we can draw out of the deal," while another manager saw an "arbitrage opportunity" to make trading gains.

While neither admitting nor denying the SEC's findings, UBS will hand over a grand total of $50 million, comprised of its $23.6 million up-front payments, $10.8 million disclosed fee, $9.7 million in lost interest, and $5.7 million of penalty charges. At the time of this writing, UBS had not released an official response.

Fool contributor Justin Loiseau has no position in any stocks mentioned. You can follow him on Twitter @TMFJLo and on Motley Fool CAPS @TMFJLo.

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