- Title: USA / FILE: Eight banks targeted in Wall Street probe
- Date: 14th May 2010
- Summary: NEW YORK, NEW YORK, UNITED STATES (FILE) (REUTERS) DEUTSCHE BANK EXTERIOR VARIOUS GOLDMAN SACHS EXTERIORS VARIOUS MORGAN STANLEY EXTERIORS UBS EXTERIOR VARIOUS BANK OF AMERICA EXTERIORS CHASE EXTERIOR
- Embargoed: 29th May 2010 13:00
- Topics: Finance
- Reuters ID: LVAAE9HP0BTA68O9U8HF451IB356
- Story Text: U.S. authorities are expanding their probes of past mortgage securities deals, with New York's attorney general opening an investigation into whether eight banks misled rating agencies, a source familiar with the matter said.
New York Attorney General Andrew Cuomo's office on Wednesday (May 12) served subpoenas on four U.S. banks and four European lenders, the source said.
Cuomo is targeting Citigroup, Credit Agricole, Credit Suisse, Deutsche Bank, Goldman Sachs Group Inc, Morgan Stanley, UBS and Merrill Lynch, now owned by Bank of America, the source said.
The investigation comes as Wall Street and major banks around the world are attracting scrutiny from regulators stemming from transactions that occurred in the run-up to the subprime mortgage meltdown and financial crisis.
The Wall Street Journal on Wednesday reported that U.S. federal prosecutors, working with securities regulators, were conducting a preliminary criminal probe into whether four banks misled investors about their roles in mortgage bond deals.
The banks under early-stage criminal scrutiny are JPMorgan Chase, Citigroup, Deutsche Bank and UBS, the newspaper reported on its website, citing a person familiar with the matter.
The banks have also received civil subpoenas from the U.S. Securities and Exchanges Commission as part of a sweeping investigation of banks' selling and trading of mortgage-related deals, the report said.
John Coffee, a securities law professor at Columbia University, said the investigation could be a waste of time.
"You can't indict everyone. There is safety in numbers, and these investigations that the Justice Department is conducting and the Attorney General is conducting have so many potential defendants that it's hard to pick out one that is uniquely culpable", he said.
Coffee added he thought it odd for the federal government to indict companies that it protected from bankruptcy.
"Everyone is aware that the U.S. government bailed out this industry with TARP money. There is something perversely counter-productive with indicted an investment bank that has received billions of dollars of federal funds just a year or two ago. It seems like you are taking away the benefit that you already created because the conventional wisdom has long been that at least an individual investment bank or financial services firm could not survive a criminal indictment," Coffee added.
A spokesman for JPMorgan told the Journal the bank had not been contacted by federal prosecutors and was not aware of any criminal investigation. The other banks either declined comment or were not immediately available.
The reports come less than a month after the SEC charged Goldman Sachs with fraud over its marketing of a subprime mortgage product.
Federal investigators are also probing Morgan Stanley, The Wall Street Journal reported on Wednesday. The bank's chief executive, James Gorman, said he had no knowledge of any such investigation.
The companies that rated the mortgage deals were McGraw-Hill Cos Inc's Standard & Poor's, Fitch Ratings and Moody's Investors Service, a unit of Moody's Corp.
The New York attorney general's investigation was first reported by The New York Times.
Spokesmen for UBS and Deutsche Bank declined to comment, and a spokeswoman from Credit Agricole declined to comment on the New York Attorney General's investigation. The other banks did not immediately return messages seeking comment.
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