FBI Probes 14 Companies in Subprime Mortgage Crisis

WASHINGTON - January 29, 2008 - Federal investigators have opened criminal inquiries into 14 companies as part of a wide-ranging investigation of the subprime mortgage crisis, focusing on accounting fraud, securitization of loans and insider trading, among other areas, the Federal Bureau of Investigation said.

The FBI wouldn’t identify the companies under investigation but said that generally the bureau is looking into allegations of fraud in various stages of mortgage securitization, from those who bundled the loans, to the banks that ended up holding them. Neil Power, chief of the FBI’s economic crimes unit in Washington, said the bureau was also going over the books of financial firms that have been forced into bankruptcy as a result of the mortgage crisis, to look for instances of insider trading or other wrongdoing.

The investigations represent an added dimension to the bureau’s decade-long focus on mortgage fraud, which spiked during the 1990s housing boom. For years, the FBI has netted major fraud cases involving real-estate agents, appraisers and so-called straw buyers involved on the front-end of real-estate sales. A look at suspected fraud in the secondary market for mortgages, FBI officials believe, could implicate better-known names of financial firms which have been involved in the losses of billions of dollars in investors’ money.

It also adds to the increasingly long list of probes focused on this area, which also include the Securities and Exchange Commission, the New York State Attorney General, and others.

FBI officials say the bureau has 1,200 mortgage fraud cases under investigation and that they believe many more cases are in the offing, based on the number of so-called suspicious activity reports filed by banks. The number of SARs documented by the FBI has rocketed from 35,000 in 2006, to 48,000 in 2007, and are projected to reach 60,000 in 2008.

“We have observed that subprime loans are decreasing, but the suspicious activity reports we see…have noted that suspicions of mortgage fraud are increasing,” said Sharon Ormsby, the financial crimes section chief in the FBI’s criminal investigative division.

“We anticipate in [2008] that another wave of adjustable rate mortgages will reset, and with that we anticipate the mortgage corporate fraud potential cases to increase based on our belief of potential accounting fraud, insider trading and other issues.”

FBI officials say the bureau is working with the SEC, which has opened more than three dozen investigations in the subprime mortgage business, including the role of investment banks.

U.S. Probes 14 Companies In Subprime Investigation
By EVAN PEREZ | Wall Street Journal