In an article in the February 19, 2008 Atlanta Journal-Constitution, Associated Press reporter Mark Jewell noted that regulators are trying to punish Wall Street for its mortgage finance practices. While these practices have expanded homeownership and spread risk among new players, they came at the cost of duping the borrowers and investors who supplied cash to fuel the housing bubble that has burst.
State securities regulators and some individual cities have brought lawsuits trying to prove that investment banks and big mortgage lenders are not just guilty of making poor business decisions and failing to foresee the looming mortgage troubles but rather of engaging in fraud. The FBI is also investigating possible criminal conduct based upon what Wall Street firms knew about the risks of securities backed by subprime mortgages and whether they hid those risks from investors.
Observers do not expect the regulators to extract massive financial penalties in the civil cases they are bringing against Wall Street firms and mortgage lenders. But they could uncover evidence that will force Wall Street on the defensive as the government seeks to ease the subprime-related financial strains on the bond insurers. Evidence of bad behavior by Wall Street could also fuel the filing of even more lawsuits by private investors. Already 278 subprime cases were filed in federal courts in 2007.
Different government entities have used different legal theories for their claims against Wall Street firms and mortgage lenders. The cities of Cleveland and Baltimore have sued to recover damages from mortgage lenders alleging that their actions contributed to the rise in foreclosures in their respective cities. (Cleveland has based its lawsuit against both mortgage lenders and investment banks on alleged violations of the laws against public nuisance). The state securities regulators, however, have sued for violations of state securities laws.
The Attorneys General in New York and Ohio have targeted the alleged systematic inflation of home appraisals by major lenders and appraisal firms. The regulators in Massachusetts and other states seek to demonstrate that the investment banks failed to disclose the risk to investors who bought mortgage-related securities and failed to disclose possible conflicts of interest, including the trading of subprime-related securities for their own account.
The FBI has opened criminal probes into 14 companies for possible accounting fraud, insider trading or other criminal violations. The SEC had approximately 36 active investigation under way involving subprime-related securities.
State securities regulators, such as Massachusetts Secretary of State William Galvin, seem determined to get to the bottom of this subprime mortgage mess. As Galvin has said, “. . . I think there needs to be an understanding of how we got where we are, whether that is through regulatory action, or through Congress.”
Page Perry is a ten lawyer Atlanta-based law firm with over 125 years collective experience representing investors in securities related litigation and arbitration. While past results are not indicative of future success, Page Perry’s attorneys have recovered over $1,000,000 for clients on more than 30 occasions. Page Perry’s attorneys are actively involved in counseling investors regarding their subprime investment problems and have brought claims for investors with losses relating to these problems. For further information, please contact us.