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Wall Street JournalNEW YORK (Dow Jones)--The financial sector largely shrugged off reports of new federal investigations into banks' roles in mortgage-bond deals, with shares slightly lower as additional investigations largely were expected.
Federal prosecutors, working with securities regulators, are conducting a preliminary criminal probe into whether several major Wall Street banks misled investors about their roles in mortgage-bond deals, a person familiar with the matter told The Wall Street Journal. Many major Wall Street banks created collateralized debt obligations at the behest of players that made bets against the deals--and banks themselves sometimes bet against the deals. Bearish bets paid off when the mortgage market crashed.
The banks under early-stage criminal scrutiny--J.P. Morgan Chase & Co. (JPM), Citigroup Inc. (C), Deutsche Bank AG (DB) and UBS AG (UBS)--also have received civil subpoenas from the U.S. Securities and Exchange Commission as part of a sweeping investigation of banks' selling and trading of mortgage-related deals, the person said. Under similar preliminary criminal scrutiny are Goldman Sachs Group Inc. (GS) and Morgan Stanley (MS).
Meanwhile, the New York attorney general is starting an investigation into eight banks to determine if they provided misleading information to rating agencies to inflate the grades of certain mortgage securities, The New York Times reported, citing two people with knowledge of the investigation. The targets include Goldman Sachs, Morgan Stanley, UBS, Citigroup, Deutsche Bank, Credit Suisse Group (CS), Credit Agricole SA (CRARY) and Merrill Lynch, which is now owned by Bank of America Corp. (BAC), the report said.
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