NYS Attorney General Sues Investment Bank for Issuing MBS with Weak Due Diligence
The New York State Attorney General has filed a lawsuit against a large investment bank alleging “multiple fraudulent and deceptive acts” in connection with mortgage-backed securitizations sponsored by a purchased firm. Making several broad allegations, the New York State Attorney General essentially alleges that the defendant did not conduct sufficient due diligence on the underlying mortgages even though it hired a third party. The NYSAG argues that the defendant intentionally pressured the third party with volume and turnaround requirements to ensure weak due diligence. Although the alleged conduct occurred at a firm purchased by the defendant, the NYSAG argues that the defendant could not have purchased the MBS sponsor without a $29 billion loan from the Federal Reserve Bank of New York. The lawsuit, filed in New York State court, charges violations of New York State’s Martin Act, which prohibits deceptive practices in securities transactions.
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