Sunday, December 25, 2011

NY AG Escalates Mortgage Securities-Peddling Probe; Strikes Deal With Federal IG To Share Info, Pool Resources In Investigation Into Bankster Conduct

Financial Tmes reports:

  • The federal watchdog overseeing US mortgage finance companies Fannie Mae and Freddie Mac is joining forces with New York’s attorney-general to investigate banks’ mortgage securitisation practices, a partnership that could make it easier for authorities to bring fraud charges against Wall Street companies.


  • Investigators will be able to share documents and findings, and pool resources, according to people familiar with the co-operation agreement. It was signed in recent weeks by Eric Schneiderman, New York attorney-general, and Steve Linick, the inspector general supervising Fannie and Freddie as well as , the regulator responsible for the two taxpayer-owned home loan financiers.


  • The collaboration escalates Mr Schneiderman’s probe of about a dozen banks and mortgage insurers as part of a broad investigation into whether banks properly bundled hundreds of billions of dollars worth of home loans into now-soured securities sold to investors.


  • The New York attorney-general is armed with the state’s Martin Act, considered one of the most powerful prosecutorial tools in the country. The law allows Mr Schneiderman to investigate anyone doing business in New York and to bring cases without having to show that the accused intended to commit fraud. State prosecutors need only prove that a fraud was committed, which state courts have defined as “all deceitful practices contrary to the plain rules of common honesty”.


  • The law allows Mr Schneiderman to pursue civil and criminal probes, and to seek felony criminal convictions. The Martin Act confers broader powers than federal securities laws used by agencies like the US Securities and Exchange Commission, which must show intent when bringing fraud cases. Previous New York prosecutors such as Eliot Spitzer have wielded the law to extract billions of dollars from Wall Street firms for alleged wrongdoing.


  • Representatives for Mr Schneiderman and Mr Linick confirmed they were co-operating but declined to give details.

Source: US investigators join forces in mortgage probe.

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