Bloomberg News
Wednesday, January 30, 2008

Goldman Sachs Group and Morgan Stanley, the two biggest securities firms, said they were responding to requests from regulators for information on subprime-mortgage securities.

Morgan Stanley said the requests concerned "the origination, purchase, securitization and servicing of subprime and non-subprime residential mortgages and related issues."

Connecticut and New York are among states, along with the Securities and Exchange Commission, investigating the home-loan industry after surging defaults paralyzed the market for mortgage-backed bonds. The largest banks and securities firms have posted at least $133 billion in credit losses and write-downs related to subprime loans, typically given to borrowers with the weak credit histories.

Goldman said it was cooperating with the requests, which came from "various governmental agencies and self-regulatory organizations." Morgan Stanley said it received subpoenas and has been named as a defendant in civil lawsuits related to the mortgage market.

An SEC task force that began meeting in May is examining Wall Street's handling of subprime home loans, the agency's deputy enforcement director, Walter Ricciardi, said this month. The investigations are looking at underwriters and other firms involved in bringing securities to market, as well as firms that perform due diligence, he said.

FBI officials said yesterday that they were investigating 14 corporations for possible accounting fraud and other crimes related to the lending crisis.

Neil Power, chief of the FBI's economic crimes unit, wouldn't identify the companies, though he said the cases involve "valuation-type stuff." The probes include reviews of subprime lenders, housing developers and Wall Street banks that package loans as securities, he said.

"We're looking at the accounting fraud that goes through the securitization of these loans," Power said at a briefing. "We're dealing with the people who securitize them and then the people who hold them, such as the investment banks."

Power said another area of criminal inquiry is insider trading -- whether executives sold shares when they knew loan defaults were going to surge.