Bloomberg News

U.S. Probing 16 Financial Institutions Over RMBS, Firm Says (1)

September 24, 2013

Sixteen financial institutions are being investigated by government officials as part of their scrutiny of bank actions in the years before the financial crisis, according to a court filing by Wall Street’s largest mortgage due-diligence firm.

Clayton Holdings LLC, objecting today to a July 1 subpoena seeking documents related to the firm’s work on residential mortgage-backed securities, said the U.S. Justice Department was engaged in a “fishing expedition” aimed at collecting massive amounts of data on almost 200 clients. Clayton didn’t identify the 16 institutions being probed by the RMBS working group, a group of federal and state officials that includes the Justice Department.

“Rather than seek documents for those clients who are actually the subjects of its investigation, the government is seeking to seize every document and communication for all 193 clients and for almost 5,000 e-mail custodians, in violation of Clayton’s rights under the Fourth Amendment,” Marc Rothenberg, a lawyer for Clayton at Blank Rome LLP, said in the filing today in federal court in Connecticut.

The Justice Department’s financial fraud task force has increased its activity in RMBS cases, suing Bank of America Corp. (BAC:US) last month as New York-based JPMorgan Chase & Co. (JPM:US) disclosed criminal and civil investigations. Bank of America, based in Charlotte, North Carolina, has denied wrongdoing and said it will fight the suit.

Identical Subpoenas

Clayton said two other third-party firms received identical subpoenas -- LPS Credit Risk Solutions and LPS Valuation Solutions. Frank Morreale, a lawyer at Holland & Knight LLP who represents the LPS companies, didn’t immediately respond to an e-mail seeking comment on Clayton’s filing.

Clayton, based in Shelton, Connecticut, said it cooperated with government demands for information during the past six years and previously aided the working group of federal and state officials investigating the pooling and sale of mortgage-backed securities.

In the filing, the firm said that several members of the working group expressed disagreement with the Justice Department subpoena, which seeks due diligence reviews performed by Clayton, as well as all communications between its employees and clients for whom it performed the reviews from 2005 to 2007. Clayton didn’t identify those members.

Adora Andy Jenkins, a Justice Department spokeswoman, declined to comment on Clayton’s filing.

The case is U.S. v. Clayton Holdings LLC, 13-mc-00116, U.S. District Court, District of Connecticut (New Haven).

To contact the reporter on this story: Tom Schoenberg in Washington at tschoenberg@bloomberg.net.

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net.


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Companies Mentioned

  • BAC
    (Bank of America Corp)
    • $15.62 USD
    • 0.10
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  • JPM
    (JPMorgan Chase & Co)
    • $59.17 USD
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