NEW YORK (AP) - The New York attorney general has launched an
investigation into eight banks to determine whether they misled
ratings agencies about mortgage securities, according to a person
familiar with the investigation.
Attorney General Andrew Cuomo is trying to figure out if banks
provided the agencies with false information in order to get better
ratings on the risky securities, said the person, who spoke on
condition of anonymity because the investigation has not been made
Cuomo's office is investigating Goldman Sachs Group Inc., Morgan
Stanley, UBS AG, Citigroup Inc., Credit Suisse, Deutsche Bank,
Credit Agricole and Merrill Lynch, which is now part of Bank of
Spokesmen from the banks were immediately available to comment.
During the housing boom, Wall Street banks often packaged pools
of risky subprime mortgages together. The securities were then
typically given top-notch ratings and investors purchased them, in
part, because of their high ratings.
The ratings, given out by Standard & Poor's, Moody's Investors
Service and Fitch Ratings, are used as a guide for investors to
judge how risky an investment might be.
As the housing market collapsed and more customers fell behind
on repaying their mortgages, the securities began to fail.
The securities have been widely blamed for exacerbating the
credit crisis and costing investors and the banks themselves
billions of dollars in losses. The ratings agencies have come under
fire for having given such high ratings to securities that soured.
The attorney general's probe comes as federal regulators are
investigating whether some of the banks misled investors when
marketing and selling the securities and other investments that
were tied to mortgages.
The Securities and Exchange Commission charged Goldman Sachs
with fraud over its packaging of mortgage securities. Goldman is
facing a separate criminal investigation into the same securities.
Goldman has denied the charges and plans to defend itself.
Earlier this week it was reported that federal prosecutors are
investigating whether Morgan Stanley misled investors about its
role in a pair of $200 million derivatives whose performance was
tied to mortgage-backed securities.
The increased scrutiny over how banks managed, packaged and
portrayed mortgage securities and derivatives comes as Congress
discusses a major overhaul of financial regulations. Politicians
have said an overhaul would add more transparency to investments