Mortgage giants, Lehman and AIG face probe WASHINGTON
The four are among 26 companies that FBI is investigating for possible fraud
WASHINGTON: Under pressure to hold Wall Street accountable for the credit crisis, the United States Federal Bureau of Investigation (FBI) has opened preliminary investigations into possible fraud at four companies at the centre of the recent turmoil - Fannie Mae, Freddie Mac, Lehman Brothers and American International Group (AIG).
A government official, speaking on condition of anonymity, said it was ‘logical to assume’ that those four companies would come under investigation because of the many questions surrounding their recent collapse.
The four are among 26 that the FBI is reviewing for possible accounting misstatements.
Mortgage finance giants Freddie and Fannie, as well as insurer AIG, were all taken over by the government earlier this month. Lehman filed for bankruptcy.
The crisis has led the Bush administration to ask Congress to approve a US$700 billion (S$1 trillion) bailout for the financial industry.
People familiar with the matter have said earlier that other companies under FBI investigation include IndyMac Bancorp and Countrywide Financial, which has since been bought by Bank of America.
FBI director Robert Mueller, testifying in Congress last week, pledged to ‘pursue these cases as far up the corporate chain as necessary to ensure those responsible receive the justice they deserve’.
Fannie and Freddie, as well as AIG, already restated their books earlier this decade and corrected billions of dollars in accounting errors.
Fannie paid a record US$400 million fine to the Securities and Exchange Commission and its regulator in 2006 to settle charges that executives fraudulently used ‘cookie jar’ reserves and other accounting gimmicks to hide US$10.3 billion in losses from 2002 to 2004 and maximise bonuses.
Freddie paid US$125 million in fines in 2003 and restated earnings from 2000 to 2002 after it replaced long-time auditor Arthur Andersen and discovered errors related to derivatives.
Regulators accused the company of manipulating its accounting to push some US$5 billion in earnings to future quarters.
The Federal Housing Finance Agency, which regulates the government-sponsored mortgage companies, seized control of both companies earlier this month after outside examiners found more accounting problems and said their capital cushion was low.
Several senators at last week’s hearing made it clear that they wanted to see the FBI take aggressive steps to investigate possible criminal wrongdoing in connection with the crisis.
‘And if people were cooking the books, manipulating, doing things they were not supposed to do, then I want people held responsible,’ said Senator Patrick Leahy, who leads the judiciary committee.
LOS ANGELES TIMES, NEW YORK TIMES
Source : Straits Times - 25 Sept 2008
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