The Year in Wall Street Investigations

by Karen Weise
ProPublica,
Dec. 27, 2010

It's been over three years since credit markets started shaking with the early tremors of the subprime crisis, and two years since that spread into a marketwide collapse. Prosecutors, regulators, Congress and journalists have spent the year uncovering the financial shenanigans that brought the market to its knees. It's been marked by a few blockbuster settlements and more revealing investigations -- as well as by some noticeable inaction in the reckoning.

Let's start at the ground level, with selling risky mortgages to homeowners. Nobody symbolized the subprime market -- from its growth to its downfall -- better than former Countrywide CEO Angelo Mozilo. This fall, the Securities and Exchange Commission reached a $67.5 million settlement [1] with Mozilo in its only major case against a financial executive. The SEC charged Mozilo with praising Countrywide to investors while internally doubting its lending standards. As part of the settlement, Mozilo admitted no wrongdoing.

Moving up the finance chain, we come to the banks that sold mortgage deals to investors. Much of the scrutiny focuses on a type of mortgage deal called collateralized debt obligations, or CDOs, which are essentially bundles of other mortgage bonds that were sold off to investors.

Though nearly every bank [2] is rumored to be under investigation, the year was marked by one major case looking at the CDO business. In April, the SEC accused Goldman Sachs of creating a mortgage deal [3] that was designed to fail. The SEC's argument was that Goldman's hedge-fund client helped design the deal specifically to bet against it -- without Goldman explaining the relationship to investors. In July, Goldman settled for $550 million (or about two weeks' worth of profit [4]), admitting a "mistake" but no wrongdoing.

(More here.)

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