Wall Street Fraud Investigation


Banks realized that they could bundle mortgages given to Main Street folks and sell interest in them as securities, hence, mortgage backed securities. (e.g. Fannie and Freddie) Realizing the heavy investment potential, the banks then gave out more mortgages so that they could sell more securities. They are accused of not caring what the credit of the person was, because they are making their money on the back and front end of the mortgage.

Investors are then buying overvalued securities. Once everyone figures this out, (burst of housing bubble), all mortgage backed securities go down, and those corporations heavily invested in those go down, and those companies insuring them lose and there are too many houses worth less money than people paid for them and no one can get a loan and no one can sell their house.


Interestingly, most of the companies involved have been investigated for white collar crimes in the last ten years. AIG was fined for committing securities fraud before in 2006. They settled for $800,000,000 and promises to reform. (Looks like we'll be paying that fine) AIG is the largest guarantor of bonds and other loans, insuring them against default. Bankruptcy would make it difficult for AIG to honor its remaining credit guarantees, which would cause lenders worldwide to depreciate assets, thereby causing quick sale of stocks and bonds, thus devaluing everything and ruining people's lives. The market for debt insurance contracts was worth $58 trillion worldwide at the end of last year, how much of that AIG is responsible for nobody knows . . . hence the uncertainty in any bailout.

Other companies which have faced alleged fraud accusations were WorldCom, Enron, Tyco, Merrill Lynch, Salomon Smith Barney, Morgan Stanley, Lehman Brothers, Bear Stearns, Credit Suisse Group, Deutshe Bank, Goldman Sachs, J.P. Morgan, UBS Warburg, U.S. Bancorp Piper Jaffray, etc. Obviously white collar crime is a pervasive problem.

There is a great deal of pressure on the government to show that someone was responsible. How could this have happened without someone breaking the law?


There are all sorts of federal crimes that are likely pervasive in this mess. We probably will not see any criminal charges for a while, as this is extremely complicated, even to the foremost experts in the world, and often Federal Prosecutors wait for internal investigations and also for regulatory investigations, such as the SEC, attorney generals, NASD, NYSE, and NASAA.

This is quite a complex subject and could include the following charges. With all of these parties from many different companies, probably most white collar crimes could be present:

Securities Fraud: (insider trading, accounting fraud, misrepresentation about company or its securities to an investor or the public)

1. Brokers-dealers misleading clients or advising based on inside information

2. Financial advisors or analysts purposefully offering poor advice or inside information

3. corporations hiding or distorting information

4. private investors acting on inside information

Shareholder Fraud: occurs when a company conceals its debts or beefs up its earnings reports in order to mislead investors and stockholders. (Enron)

Investment/Brokerage Fraud: occurs when investment and brokerage houses commit fraud when they offer false or deceptive information to their investors in an effort to manipulate the market. (Merrill Lynch, Solomon Smith Barney/Citigroup's investment banking unit…and now Citygroup purchases Wachovia).

1. Biased investment advice

2. Unfounded advice.

3. Contradictory investment advice to different clients.

4. Continuing a risk - advice to stay in when the risk is apparent and the potential gain unlikely.

5. Conflict of interest - advisor or firm with ties to a business may sell that business's stock, even if the opportunity is not the most lucrative to the client.

For more information visit www.glasgowlaw.net.

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