Swiss banking giant UBS has been ordered by a US judge to set aside $35 million (£21.1 million) to cover a potential judgment against it in a case where bankers described complex debt securities they were selling as “crap” and “vomit”.

The Connecticut judge ruled that hedge fund Pursuit Partners has a valid case on its claim that UBS sold it securities in 2007 when it knew that they were about to be downgraded from investment grade. This happened as the mortgage market was collapsing.

Superior Court Judge John Blawie found probable cause that UBS used secret insider information obtained from its relationship with ratings agencies Moody's and Standard & Poor's to commit securities fraud in the sale of collateralised debt obligation notes to Pursuit.

UBS said: “The decision by the Connecticut Superior Court is a preliminary procedure to require defendants to post security while a case is pending, nothing more. The decision is not a decision on the merits or a prediction of the outcome of the case. UBS is confident that it will prevail on the merits of the case.”