- The Washington Times - Wednesday, March 19, 2008

An FBI investigation into the subprime mortgage crisis has expanded from 14 to 17 companies suspected of accounting fraud, improperly securing loans and insider trading, and could grow even larger, according to government officials.

While the FBI has acknowledged an ongoing investigation into lending practices involving subprime mortgages, which financial experts have said could take years to complete, neither the bureau nor the Justice Department has commented publicly on any specific targets.

Bear Stearns Cos., Goldman Sachs Group Inc. and Morgan Stanley separately have acknowledged, however, that government investigators were asking for information about their subprime lending practices.

Those acknowledgments were contained in annual reports the companies are required to submit in January to the U.S. Securities and Exchange Commission, although it was not clear whether the disclosures were related to the FBI probe. All three said they were cooperating with the government’s requests.

Yesterday, Reuters news agency reported that the FBI investigation was looking at Countrywide Financial Corp., the largest U.S. mortgage lender, although bureau officials declined to comment and Countrywide said it was unaware of any investigation.

According to the firm’s most recent SEC filing, a number of investors have brought lawsuits against Countrywide in California and Delaware, saying directors and executives did not disclose complete and accurate information about its mortgage lending practices and financial condition.

“The FBI has been investigating potential fraud in the mortgage/sub-prime lending industry, however, we can not confirm or deny which companies are under investigation,” said FBI spokesman Richard Kolko.

FBI officials have said agents are looking into possible fraud during the many stages of mortgage securitization, adding that the investigation involved subprime lenders, housing developers and the many banks that packaged loans as securities.

Included in the investigation, said Neil Power, chief of the FBI’s economic crimes unit, was an extensive review of the financial records and other documents generated by firms forced into bankruptcy by the mortgage crisis.

Senior FBI criminal investigators said during a media briefing in Washington in January that “plenty of shenanigans with mortgages and subprime loans” were costing the nation tens of billions of dollars a year.

“Greed is definitely not good for our economy right now,” said FBI Assistant Director Ken Kaiser. “It’s hurting homeowners. It’s hurting honest businesses. And it’s hurting investors and markets around the world.”

At the time, the FBI confirmed it was “squarely focused on cracking down on the largest of these financial crimes, launching pro-active initiatives and shifting resources as trends emerge, all the while working hand-in-hand with a host of government and private sector partners.”

The FBI said it was investigating 14 corporations involved in subprime lending as part of the bureau’s Subprime Mortgage Industry Fraud Initiative started last year, and the companies spanned the financial services industry, from mortgage lenders to investment banks that bundle loans into securities sold to investors.

It also said the investigation had focused on insider trading by some executives, adding that it had more than 1,200 cases open, up about 40 percent from last year.

The FBI said the targeted “hot spots” included California, Texas, Arizona, Florida, Ohio, Michigan and Utah; that suspicious-activity reports it reviewed for potential mortgage fraud had grown from 3,000 in fiscal 2003 to 48,000 in fiscal 2007. It also said it was on pace this year to receive more than 60,000 such reports.

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