Wednesday, January 30, 2008

FBI Smells A Rat In The Subprime Crisis

FBI Investigates 14 Firms In Subprime Crackdown
By Randall Mikkelsen

The FBI has opened criminal investigations into 14 corporations as part of a crackdown on improper subprime lending, agency officials said on Tuesday.

FBI officials told reporters the probes involved potential violations, including accounting fraud and insider trading.

They did not identify the companies. But the probes reached across the industry to include developers, subprime lenders, companies that securitized loans and investment banks that held them, said Neil Power, head of the FBI's economic crimes unit.

"We anticipate in the next year that another wave of adjustable rate mortgages will reset and with that we anticipate that the mortgage corporate fraud potential cases to increase," said Sharon Ormsby, head of the FBI's financial crimes section.

The FBI is investigating the corporate cases in parallel with the Securities and Exchange Commission, which has opened about three dozen civil investigations into the subprime market collapse. Some of the probes overlap, an official said.

Targets of the SEC probe include Swiss bank, UBS, AG and U.S investment banks Morgan Stanley, Merrill Lynch, Bear Stearns, as well as bond insurer MBIA.

The SEC, which has formed an internal subprime mortgage task force, is looking at how financial firms priced mortgage-based securities and whether they should have told investors earlier about the declining value of those securities.

The agency has about 1,200 active cases, up 40 percent from 2006, with 321 criminal complaints or indictments, officials said.

"Subprime loans are decreasing but ... suspicions of mortgage fraud are increasing," Ormsby said.

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