Mortgage Servicing Fraud
occurs post loan origination when mortgage servicers use false statements and book-keeping entries, fabricated assignments, forged signatures and utter counterfeit intangible Notes to take a homeowner's property and equity.
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Shares Of Merrill Lynch & Co. Decline As U.S. Justice Department Seeks Information

February 8, 2008 12:37 p.m. EST

Mayur Pahilajani - AHN News Writer

New York, NY (AHN) - Federal criminal prosecutors have decided to delve further into the mortgage businesses managed by the Wall Street firms, according to a report published on Friday.

The Justice Department's U.S. attorney's office in Manhattan, based near Wall Street has demanded more information from the Securities and Exchange Commission that was collected during agency's investigation Merrill Lynch & Co., according to a Wall Street Journal report.

The news affected Merrill Lynch's shares as they dropped on the Wall Street during early morning trading session by 1.6 percent or 0.88 cents to $52.77.

However, it was not clear from the report that the SEC has agreed to provide the required data. In the past the agency has cooperated with the United States attorney's office in similar cases.

"When federal prosecutors begin an early-stage investigation of a securities firm, they almost always coordinate with the SEC, often reviewing documents that the commission obtains," David C. Esseks, a New York white-collar lawyer and former chief of the securities and commodities fraud unit at the U.S. attorney's office in Manhattan, told The Journal.

Quoting people familiar with the situation, the Journal added that the SEC, as a part of complete investigation, has been scrutinizing if the securities firm quoted inflated prices of mortgage bonds it held, even though the firm knew that the valuations had dropped.

The Justice Department's interest is "preliminary", according to the report. But the interest of the New York-based U.S. attorney's office in the mortgage-securities firms is not new.

In the past, the office had started a preliminary investigation, after a formal investigation was launched by SEC, in the Swiss banking giant UBS AG as well as in the two failed hedge funds at Bear Stearns Cos.

These firms have come under scrutiny after the country's economy suffered due to the subprime-mortgage crisis last summer.

"Whether we will see a large number of criminal cases come out of this remains to be seen, because it's dependent on a lot of subjective information, such as how to value securities in an uncertain marketplace," Michael McGovern, a former federal prosecutor and white-collar lawyer in New York, told The Journal.

"There's enough here to suggest that any case prosecutors might want to bring, they'll have pause because of the complexity, the availability of defenses and the difficulty of proving intent," he added.

Last week, Massachusetts' top securities regulator filed a lawsuit against the world's largest brokerage, Merrill, for defrauding the city of Springfield with subprime-related investments, which collapsed in value shortly after they were sold.

In an administrative fraud complaint, Secretary of State William Galvin accused Merrill Lynch of having made risky investments on behalf of the city without the mandatory permission of the western Massachusetts city.

Merrill Lynch & Co. was accused of fraud and misrepresentation after the firm promised to reimburse Springfield with $13.9 million over money lost in a dispute over an investment in CDOs that within six months toppled in value to $1.3 million."

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