FBI Investigating Financial Market Fraud But May Come Up Dry


The FBI is investigating whether fraud played a role in the troubles at Fannie Mae, Freddie Mac, Lehman Brothers and American International Group, reports the Washington Post. That brings to 26 the number of bureau investigations of institutions tied to the mortgage debacle. The Securities and Exchange Commission has opened more than 50 investigations into disclosure and valuation of housing-related investments at banks, insurers and credit-rating agencies. No charges are imminent. Current and former government lawyers cautioned that mortgage-related cases presented significant challenges for investigators because of their complexity.

Timothy Coleman, who oversaw the Justice Department’s corporate fraud task force, said, “There is no obvious crime that was committed here. It may be that people who invested in these mortgage securities misunderstood the risks. But it’s not at all clear they were the result of a misrepresentation.” To date, the highest profile criminal cases in the housing crisis involve two former Bear Stearns managers indicted on fraud charges for allegedly misleading investors about their fund’s financial health and two ex-Credit Suisse brokers accused of conspiring to win higher commissions by misrepresenting an investment’s risk to clients. Stephanie Martz of the white-collar crime project at the National Association of Criminal Defense Lawyers said it would be a mistake for prosecutors to indict entire companies and draft legislation raising criminal penalties as they did in Enron’s collapse. Instead, she said policymakers should focus on closing regulatory loopholes and figuring out why no one caught the problems sooner.

Link: http://www.washingtonpost.com/wp-dyn/content/article/2008/09/23/AR2008092302673.html?hpid=topnews

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