SEC Starts New Mortgage Fraud Probe


The Securities and Exchange Commission (SEC) and the special inspector general for the Troubled Asset Relief Program (Sigtarp) have begun a new investigation of potential intentional mispricing of mortgage securities by several big banks from 2009 to 2011. According to the Wall Street Journal, the investigators are looking at “significant misrepresentations” about the quality of some mortgage assets made by a number of major financial institutions.

Yet another investigation of potentially criminal activity is a major blow to the tarnished banking industry, which has already coughed up billions of dollars in penalties and fines relating to misconduct before and during the financial crisis of 2008. Furthermore, many banks still hold billions of dollars of dubious, hard-to-value mortgage derivative assets on their books today.

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Banks under investigation

According to the Wall Street Journal, the banks under investigation include Barclays PLC (ADR) (NYSE:BCS) (LON:BARC), Citigroup Inc (NYSE:C), Deutsche Bank AG (NYSE:DB) (ETR:DBK), Goldman Sachs Group Inc (NYSE:GS), JPMorgan Chase & Co. (NYSE:JPM), Morgan Stanley (NYSE:MS), Royal Bank of Scotland Group plc (ADR) (NYSE:RBS) and UBS AG (NYSE:UBS). None of the banks have made an official statement regarding the new investigation to date.

SEC’s probe still in early stages

The mortgage security fraud investigation began less than a year ago, and is still at an early stage, according to the Wall Street Journal. The paper also pointed out that it is possible the investigation may not lead to any enforcement action against the banks. However, the WSJ reports that subpoenas have been issued for a variety of documents at several firms as a part of the probe, and that the contents of some of these documents could prove critical in making a civil or criminal case.

Spokespersons for the SEC and Sigtarp declined to comment on the ongoing investigation.