Corporate & Securities Law

According to the Wall Street Journal, federal prosecutors, working with securities regulators, are conducting a preliminary criminal probe into whether several major Wall Street banks misled investors about their roles in mortgage-bond deals, according to a person familiar with the matter. The banks under early-stage criminal scrutiny - J.P. Morgan Chase & Co., Citigroup, Deutsche Bank and UBS - have also received subpoenas from the Securities and Exchange Commission as part of a sweeping investigation of the banks' selling and trading of mortgage-related deals.  Under similar preliminary criminal scrutiny are Goldman Sachs and Morgan Stanley, as previously reported by the Wall Street Journal.

Across Wall Street, disclosures in CDO deals were inconsistent.  According to the Journal, banks often provided pages of potential conflicts and risk factors about each deal in offering documents.  But there sometimes was spotty disclosure about the possible involvement of institutions with bearish market views in the deals' creation and design. Some CDO offering documents indicated that mortgage assets selected for the deals may have factored in the interests of market players whose interests were "adverse" to other investors. But none, according to the Journal, went as far as to state that hedge funds or banks' trading desks were making bets against the deals for their own accounts.

SNSFE continues to investigate the CDO issues arising in all of the major firms.  Those with information should feel free to contact lawyers at SNSFE.

Source:  The Wall Street Journal