FBI Launches Sub-Prime Fraud Investigations

February 01, 2008 09:32 AM
by findingDulcinea Staff
A total of 14 investment banks, loan providers and developers are under FBI scrutiny in the latest government crackdown related to the sub-prime mortgage crisis.

30-Second Summary

The FBI has announced that it is partnering with the Securities and Exchange Commission to investigate 14 companies with ties to the home loan market. The names of the companies were not released.

The SEC is checking financial records for possible links to insider trading. The FBI, for its part, is developing an initiative to investigate fraud related to accounting and mortgage issuance.

“There are some irregularities we are looking at, and [this is] good old-fashioned greed,” said Neil Power, FBI economic crimes unit chief.

The Daily Intelligencer, a blog on the Web site of New York Magazine, writes that Goldman Sachs, Bear Stearns and Morgan Stanley separately announced that government investigators asked for financial records for their divisions with business related to housing loans.

Financial news service Bloomberg reports that Goldman Sachs was named as a defendant, along with banks JPMorgan Chase and Citigroup and accounting firms Grant Thorton and KPMG, in a New York state and city comptroller’s lawsuit against lender Countrywide Financial Corporation and its affiliates.

New York State Comptroller Thomas DiNapoli explained the inclusion of the financial giants: “The underwriters and accountants enabled Countrywide to release false statements. Investors lost millions and New Yorkers lost their homes.”

An August 2007 story in The New York Times featured comments from past employees of Countrywide who said the company disregarded mortgage applicants’ cash reserves, directing some homebuyers toward sub-prime loans when they should have qualified for a safer lending product.

Headline Links: FBI begins mortgage fraud investigations

Background: Countrywide, Beazer and the mortgage crisis

Opinion & Analysis: Eliminating mortgage fraud

Reference: Adjustable interest-rate mortgages and the impending crisis


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