The New York Times on Thursday reported that New York’s Attorney General Andrew Cuomo has subpoenaed eight banks in a probe into whether they misled rating agencies in order to inflate the grades of their credit ratings.
Investigators are reportedly examining whether Bank of America Corp.’s (BAC) Merrill Lynch unit, Morgan Stanley (MS), Citigroup (C), Deutsche Bank AG (DB), Goldman Sachs (GS), UBS AG (UBS), Credit Suisse Group (CS), and France’s Credit Agricole made proper representations to investors in marketing and selling trading pools of mortgage bonds called collateralized debt obligations.
The investigation, notes the Times, is also focused on the Wall Street firms’ interactions with the rating agencies regarding the “revolving door of employees” that were hired by the banks, from the rating agencies, to help create security deals that got better grades than they deserved. According to Times sources, Mr. Cuomo is also concerned about the agencies’ fee arrangements, which allowed firms to shop their deals among the agencies for the best rating.
Mr. Cuomo’s office also said it issued subpoenas for McGraw-Hill Cos.’ (MHP) Standard & Poor’s, Moody’s Investor Service (MCO), and Fitch Ratings.
In a separate report Thursday the WSJ said that the U.S. Attorney’s office in Manhattan is conducting an early-stage criminal probe of JP Morgan (JPM), Citigroup, Deutsche Bank and UBS AG, citing a person familiar with the matter. Under similar preliminary criminal scrutiny are Goldman Sachs and Morgan Stanley.
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