“UBS AG is in settlement talks with U.S. securities regulators stemming from an investigation into a mortgage-bond deal that soured during the financial crisis, people familiar with the matter said.

“The Securities and Exchange Commission’s probe focuses on allegations that UBS defrauded investors in the sale of more than $748 million in notes tied to a collateralized-debt obligation the bank created in 2007. As part of the inquiry, the regulator is also looking at the role allegedly played by a former employee of the firm that managed the assets in the deal.

“The investigation is in its late stages, people familiar with the matter said. Settlement talks with the bank are continuing, and no agreement appears imminent, the people said.

“CDOs are securities linked to pools of mortgages and other debts and sold in slices of varying risks and returns. Their emergence as a popular way to bet on or against the housing market was later blamed by regulators and politicians for helping tip the credit markets into crisis five years ago, and the securities were found at the scene of some of Wall Street’s most-spectacular collapses.”

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