The chickens come home to roost...

Discussion in 'Financial Cents' started by Jonas Parker, Sep 3, 2008.

  1. Jonas Parker

    Jonas Parker Hooligan
    2 brokers accused of $1B subprime fraud

    By MARCY GORDON, AP Business Writer Wed Sep 3, 1:36 PM ET

    WASHINGTON - Federal prosecutors and regulators on Wednesday accused two former Wall Street brokers of defrauding customers by making more than $1 billion in unauthorized purchases of securities tied to subprime mortgages.

    They are charged with securities fraud, wire fraud and conspiracy, carrying maximum total sentences of 25 years and up to $5.25 million in criminal fines...

    The securities actually were backed by subprime mortgages, collateralized debt obligations and other high-risk investments, the authorities said. Because of their higher risk, they brought a higher yield and much larger commissions for the brokers...

    As a result, customers were stuck holding more than $800 million in securities that lost their liquidity and value when the market for auction-rate securities began to collapse in August 2007, according to the SEC...

    In recent months at least eight major investment banks, including Merrill Lynch & Co., Goldman Sachs Group Inc., Citigroup Inc. and Morgan Stanley, have signed deals with federal and state regulators to buy back more than $50 billion worth of auction-rate securities. The regulators alleged that the banks misled customers into believing that the investments were safe.


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