Fannie, Freddie, Lehman Bros & AIG Under FBI Fraud Probe

Fannie Mae, Freddie Mac, Lehman Brothers Holdings Inc and insurer American International Group Inc. and their senior executives are among the names reportedly among the targets for a massive FBI mortgage probe that has expanded from last week to include another two companies.


Two law enforcement officials told the Associated Press that the FBI is looking at potential fraud by the two mortgage finance giants Fannie Mae and Freddie Mac and insurer American International Group Inc., each of which were the subject of a massive federal bailout.

About two weeks ago, the government took over Fannie Mae and Freddie Mac with a bailout plan that could force the Treasury Department to put up as much as $100 billion for each of them over time.

Last week, the Federal Reserve provided an emergency $85 billion loan to AIG, which teetered on the brink of bankruptcy after investing heavily in complex mortgage-related securities that later faltered.

Lehman Brothers Holdings Inc., which the government allowed to collapse into bankruptcy last week, is also said to be under investigation, according to an anonymous “senior” law enforcement official.

The senior official said the probe still remain in early stages, but will focus on the financial institutions and their top executives in an effort to determine whether anyone was responsible for providing financial misinformation.

Officials said the number of corporate lenders under investigation now stands at 26.

Only a week ago, FBI Director Robert Mueller told the House Judiciary Committee that 24 firms were being probed, up from up from 19 cases disclosed by the bureau in June.

The FBI Director Robert Mueller told the Committee members that his agency was prepared to pursue senior-level executives as it investigates the subprime meltdown at the heart of the housing crisis which has shaken the global markets.

"The FBI will pursue these cases as far up the corporate chain as necessary," said Mueller.

IndyMac, which was taken over by the Federal Deposit Insurance Corp. (FDIC), was acknowledged as one of the FBI’s targets by an official speaking on condition of anonymity to the Associated Press in July.

The Pasadena, California-based company had its assets seized by federal regulators as it became the largest regulated thrift to fail in the last two decades.

Reportedly, Countrywide Financial Corp. also stands among those companies under investigation for possibly misrepresenting its financial condition and the quality of its loans to federal regulators, although the FBI has so far refused to publicly confirm or deny the reports.

Countrywide was purchased by Bank of America in July to become the largest mortgage originator in the nation.

In May, the FBI indicated there already were more than 200 agents and 33 task forces charged with combating the growing waves of mortgage fraud as the number of suspicious activity reports (SARs) filed by banks were expected to eclipse all previous years with over 66,000 reports at the current pace.

According to the agency, mortgage fraud losses in the fiscal year 2007 totaled over $813 million – even though just 7% of the agency’s SARs detailed the loss in dollar amounts.

Kenneth Kaiser, the FBI's assistant director in charge of the bureau's criminal investigations division, said the dollar amount represented “just the tip of the iceberg.”

In the report, the agency said that the number of mortgage fraud investigations open at the end of fiscal year 2007 was nearly 50% higher than the previous year, while the number of SARS filed by banks climbed 31% during that period.

However, only federally-chartered banks must file SARs with the Treasury Department's Financial Crimes Enforcement Network (FinCEN), which means that the FBI investigations are not targeting the large number of mortgage lenders exempt from such fraud filings.

In June, two former Bear Stearns managers were indicted on charges of conspiracy and securities and wire fraud for allegedly lying to investors in a now-collapsed hedge fund last year.

Posted on Wednesday, September 24, 2008 by staff