Regulators intensify mortgage inquiry More from BusinessWeek WASHINGTON The securities industry's self-policing organization has sent a detailed request for data and documents to more than a dozen Wall Street investment firms as part of an inquiry into sales of complicated mortgage products to senior citizens. While complex mortgage securities that suffered massive losses last year typically were bought by large, global institutional investors, the Financial Industry Regulatory Authority is focusing on the sale of those investments to individuals, especially retirees. In a letter sent to investment firms on Dec. 14, FINRA asked for spreadsheets and other detailed documents on mortgage investments. A copy of the letter was obtained by The Associated Press. The inquiry was reported Thursday by the Wall Street Journal. The firms have until Jan. 8 to respond to the request, according to the letter. Created in July 2007, FINRA took over industry self regulation, formerly handled by NASD and the enforcement arm of the New York Stock Exchange. It oversees almost 5,100 brokerage firms in the U.S. In September, Mary Schapiro, chief executive of FINRA, announced two regulatory "sweeps" designed to examine whether securities firms had been legally selling to seniors and people close to retirement. FINRA said at the time it was focusing on the sale of mortgage securities known as collateralized mortgage obligations. A source familiar with the investigation, who declined to be identified because details of inquiries are not typically made public, said the inquiry is preliminary. SEC officials have said they are examining Wall Street banks, investors, credit-rating agencies and others and their role in the mortgage market crisis. A spokesman for the Securities and Exchange Commission said the agency will coordinate examination of sales practices for collateralized mortgage obligations with FINRA. SEC officials have said they are examining collateralized debt obligations, which are complex pools of mortgages and other assets sold to by investors around the world in recent years. Last June, two hedge funds at Bear Stearns Cos. collapsed after making bad bets in investments linked to subprime loans made to borrowers with shaky credit.
On Thursday, law firm Sutherland Asbill & Brennan LLP held a conference call with clients and potential customers about the inquiry. In a note sent ahead of the call, the firm said the inquiry "will probably involve requests for additional documents and on-the-record testimony... Even if a firm didn't receive the sweep letter, it may want to consider reviewing its policies, procedures and practices relating to (mortgage investments)."