Corporate & Securities Law

Stories about CDOs, or collateralized debt obligations, are mounting.  According to the New York Times, the SEC has a team of about 40 investigators focusing on CDO market practices, and regulators are examining a broad array of subprime mortgage-related issues at Wall Street banks.  These include the timely disclosure of losses, accounting irregularities and possible conflicts of interest.  A spokesman for the SEC declined to comment on the investigation for the New York Times.

CDO transactions are not publicly traded, so it is difficult to get a full picture of the market's size.  But research suggests it is huge.  Thomson Reuters estimates the sale of CDOs peaked at $534 billion in 2006, from $68 billion in 2000.  Even in 2007, when the housing market was starting to crumble, Wall Street created an estimated $486 billion in new CDOs.

Synthetic CDOs accounted for just over 10 percent of total CDO issuance in 2007, according to an analysis by the Securities Industry and Financial Markets Association.  Traditional cash bond CDOs made up most of the rest.

Many banks on Wall Street and in Europe were even bigger players in the types of complex investment deals that Goldman is now defending.  Merrill Lynch was at the top of the heap, assembling $16.8 billion worth between 2005 and 2008, according to a new report by Credit Suisse.

UBS put together $15.8 billion worth of similar products, according to the Credit Suisse estimates, while JPMorgan Chase and Citigroup each created more than $9 billion worth.  Goldman Sachs was a comparatively small issuer, at $2.2 billion.

SNSFE continues to investigate the problems associated with these CDOs.  Those with information should feel free to contact lawyers at SNSFE.