Sunday, February 3, 2008

Mortgage Fraud, Whose?-2

"New York state prosecutors have secured cooperation from a company that analyzes mortgage loans for banks, aiding an investigation into the role of Wall Street banks in the subprime mortgage-market turmoil. ... The investigation's focus is whether investment banks disclosed enough to investors and to credit-rating agencies about the securities after receiving reports by due-diligence firms that showed an increasing number of loans in recent years didn't conform to minimum lending standards, according to a person familiar with the matter. ... Clayton [Holdings] deal with state prosecutors is a bit of a gamble by the firm that federal authorities would view its role as that of witness, not participant, should investigators determine that a fraud scheme existed. A deal with the state wouldn't necessarily preclude the SEC from imposing fines against the firm or its employees, although the SEC has granted some companies that cooperate with investigations leniency by way of not seeking fines or penalities", WSJ, 28 January 2008.

"The [FBI] opened criminal inquiries into 14 companies as part of a wide-ranging investigation of the subprime-mortgage crisis, FBI officals said. The probe is focusing on accounting fraud, securitization of loans and insider trading, among other areas. ... For years, the FBI has targeted fraud cases involving reale-estate agents, appraisers, and fake buyers. Now, the FBI is taking a closer look at possible fraud in the secondary market for mortgages, which could implicate better-known financial firms. ... FBI officials say the bureau has 1,200 mortgage-fraud cases under investigation. They believe many more cases are in the offing, based on the number of suspicious-activity reports filed by banks", WSJ, 30 January 2008.

Oh, oh, "scheme" liability. Will the SEC make an example of Clayton to show it has "stones" and can use "scheme" liability, now that Stoneridge precludes its use by the plaintiffs' bar? Or will the SEC offer us Clayon as a sacrifice to protect larger Wall Street players who are represented by Mary Jo White? I say again, "Round up the usual suspects".

It's good to see the FBI is finally making an investigation "which could implicate better-known financial firms". We'll see if it does, or if Mike Garcia tells the FBI he won't prosecute these "better-known financial firms".

No comments: