According to the suit, which was filed yesterday, the firm misrepresented the risk of these investments, fraudulently presenting them as safe.
However, the bank rejects these allegations, with spokesperson Katrina Byrne indicating that it would "vigorously defend" itself from them.
Should the suit be successful, UBS might be $25 billion out of pocket as it is forced to buy back the securities from US customers at face value.
"While UBS does not believe that there was illegal conduct by any employee, we have found cases of poor judgment by certain individuals and are evaluating appropriate disciplinary measures for these individuals," Ms Byrne commented in an emailed statement to reporters.
Shares in UBS fell by over six per cent this morning, as the markets reacted to the news.
They stood at $1.20 in Zurich at 09:06 GMT, Bloomberg reports.