Tags: NY | Attorney | General | Banks | Rating | Cuomo

NY Attorney General Probes If Eight Banks Duped Rating Agencies

Thursday, 13 May 2010 08:14 AM

The New York Attorney General's office is investigating whether eight banks misled ratings agencies about the quality of mortgage securities they were offering, a source familiar with the matter said.

The eight banks being investigated are Citigroup, Credit Agricole, Credit Suisse, Deutsche Bank, Goldman Sachs Group, Morgan Stanley, UBS and Merrill Lynch, now part of Bank of America, the source said.

The source spoke on the condition of anonymity because the investigations are not public.

New York Attorney General Andrew Cuomo's office issued subpoenas late on Wednesday notifying the banks of his investigation, the New York Times reported, citing two people with knowledge of the probe.
The inquiry by Cuomo suggests he thinks the rating agencies may have been duped by one or more of the targets of his investigation, the report said.

The Times said spokespeople for Morgan Stanley, Credit Suisse and Deutsche Bank declined to comment and other banks did not immediately respond to requests for comment.

The companies that rated the mortgage deals were Standard & Poor's, Fitch Ratings and Moody's Investors Service, the report said.

Cuomo was also interested in ratings agency employees hired by bank mortgage desks to help create mortgage deals that got better ratings than they deserved, the newspaper reported, citing the sources, who were not authorized to discuss the matter publicly.

The investigation parallels federal probes of business practices of a broad range of financial companies before the housing market collapse, the Times reported.

Where those investigations have focused on banks and their clients who bought mortgage securities, this one expands the scope to the interplay between banks and the agencies that rate their securities, the Times reported.

Cuomo is also interested in the revolving door of employees of the rating agencies who were hired by bank mortgage desks to help create mortgage deals that got better ratings than they deserved, the Times reported.

Goldman, which is already under investigation by federal prosecutors, has been defending itself against civil fraud accusations made in a complaint last month by the Securities and Exchange Commission.

The deal at the heart of that complaint, called Abacus, was devised in part by a former Fitch Ratings employee named Shin Yukawa, whom Goldman recruited in 2005, the Times reported.

© 2015 Thomson/Reuters. All rights reserved.

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