J.P. Morgan, Citigroup, Deutsche Bank and UBS Also Face Prosecutors' ScrutinyBy SUSAN PULLIAM, KARA SCANNELL, AARON LUCCHETTI and SERENA NG
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, according to a person familiar with the matter.
The banks under early-stage criminal scrutiny—J.P. Morgan Chase & Co., Citigroup Inc., Deutsche Bank AG and UBS AG—have also received civil subpoenas from the Securities and Exchange Commission as part of a sweeping investigation of banks' selling and trading of mortgage-related deals, the person says. Under similar preliminary criminal scrutiny are Goldman Sachs Group Inc. and Morgan Stanley, as previously reported by The Wall Street Journal.
The Manhattan U.S. Attorney's office and SEC are working hand-in-hand. At issue is whether the Wall Street firms made proper representations to investors in marketing, selling and trading pools of mortgage bonds called collateralized debt obligations, or CDOs.
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The criminal probe marks an important juncture in the fallout from the financial crisis and highlights the severity of the scrutiny for Wall Street. Prosecutors have brought just one major criminal case stemming from the crisis, against two Bear Stearns Cos. traders, and lost it. Lawmakers are calling on prosecutors to do more.
Prosecutors so far are simply gathering evidence. They haven't issued criminal subpoenas, nor have they homed in on the outlines of any potential case.
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