FBI, IRS, USAO, SEC Subprime Investigations Ongoing; Accounting Update: Roper, Bellaire Weigh In on Principles vs. Rules in WSJ

By Edith Orenstein, FEI Financial Reporting Blog - A slew of federal and state agencies continue to examine whether fraud was a component of the subprime mortgage debacle and related losses on loans and investments in mortgage-backed securities and related derivatives.

The investigation into potential fraud is focusing on at least three fronts, as described in the article “Wall Street, Lenders Face Subprime Scrutiny” by Amir Efrati in today’s Wall Street Journal:

  • “whether officials made misrepresentations in securities filings about a company’s financial posiion and the quality of its mortgage loans, including failing to disclose a rising number of loan defaults, or engaged in questionable accounting to hide losses.”
  • “whether companies doctored information about borrowers, such as credit histories, before making loans and selling those loans to banks or Wall Street firms, which packaged them into securities and sold them to investors.”
  • “whether brokers at Wall Street firms lied to investors, orally or otherwise, by stating that their investments in vehicles known as collateralized-debt obligations were backed by, for example, corporate debt rather than assets such as subprime-mortgage loans.”

See links to more articles on the subprime investigations, related accounting developments, and the principles vs. rules debate here.

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FEI Financial Reporting Blog provides highlights from SEC, PCAOB, FASB, IASB, and other regulatory news, including reporting under Sarbanes-Oxley Sect 404. It is written by Edith Orenstein, Director of Technical Policy Analysis at FEI

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