Legal News

Subprime Legal: SDNY v. EDNY Subprime ?Subway Series? Heats Up

By Dan Slater

Following WSJ’s Monday story about the numerous subprime crisis-related investigations by the Brooklyn U.S. attorney’s office, LB colleague Amir Efrati received emails from gleeful former Brooklyn prosecutors who were flush with pride.

But he also heard from some former Manhattan federal prosecutors who were curious if their beloved “Sovereign District,” as it is deferentially called, was doing anything in this area, which reminded us of LB alum Peter Lattman’s opus about the storied legal “subway series.”

Well, SDNYers, take heart. Today’s WSJ story about Countrywide’s woes in bankruptcy court (see LB background here, hereand here) and the company’s vow before a senate panel to improve their operations, includes a nugget about how the Manhattan U.S. attorney’s office has grabbed a piece of the Justice Department probe into the No. 1 mortgage lender in the country.

According to the story, Southern District prosecutors are investigating whether executives of Countrywide committed securities fraud, while prosecutors in Los Angeles, near Countrywide’s headquarters, are investigating possible fraud in the company’s origination of loans. People involved in the inquiry say the Federal Bureau of Investigation has seen evidence of extensive fraud that occurred during the loan origination. Countrywide declined to comment.

The prosecutors at One St. Andrews Plaza, a stone’s throw from Law Blog headquarters in Gotham, are examining whether executives were aware of such fraud and, in securities filings, may have understated the risks of buying securities backed by Countrywide loans to risky borrowers. They are also looking at whether any executives made false statements or engaged in insider trading.

In the Manhattan office’s other known subprime-related inquiry, the WSJ had previously reported that prosecutors had asked the Securities and Exchange Commission for information related to the SEC’s formal probe into whether Merrill Lynch booked inflated prices of mortgage bonds it held despite knowledge that the valuations had dropped; it’s unclear whether that ever turned into a full-blown criminal investigation. Merrill declined to comment.

If any of you white collar lawyers has information about these or other subprime-related probes, please drop Amir a line at amir.efrati@wsj.com.

Full post as published by Law Blog - WSJ.com on May 07, 2008 (boomark / email).