CORPORATE CRIME REPORTER
First
the Bailout, Then the Bailiff
22 Corporate Crime Reporter 37(12), September 29, 2008
So, will the subprime meltdown produce Enron like criminal prosecutions?
Or will it be more like the options trading investigations – lotsa smoke, little fire?
Probably more like Enron.
That’s the take of Craig Margolis a partner at Vinson & Elkins in Washington, D.C.
We caught up with Margolis while he was in Istanbul, Turkey.
We guessed correctly that it wasn’t sight-seeing, but due diligence on a Foreign Corrupt Practices Act case.
Margolis will appear next week on a panel at the American Bar Association’s National Securities Fraud Institute in Arlington, Virginia.
Title of the panel?
“The Subprime Meltdown: Reactions and Action at the SEC and DOJ.”
CNN reported last week that the FBI is investigating Fannie Mae, Freddie Mac, Lehman Brothers Holdings Inc., and insurer American International Group Inc. and their senior executives for potential mortgage fraud.
CNN reported that the bureau is trying to determine whether anyone in those financial institutions, including their senior executives, had any responsibility for providing misinformation.
Margolis said any criminal investigation would start at the consumer level where already there are investigations nationwide relating to predatory lending and individuals who were given mortgages they couldn’t afford.
“Then when those mortgages are packaged into securities, certainly questions will be raised as to whether there were adequate disclosures in term of the risk,” Margolis said. “You have the rating agencies that rated those securities. So, there will be questions relating to the ratings process. There will be questions about the insurance issued for those obligations.”
“It would not surprise me at all to see a task force formed at Main Justice to coordinate the investigations,” Margolis said.
Where’s the criminal activity here?
“I suspect it is going to come down to whether or not the government believes it can make the case of false representations,” Margolis said. “Were the risks of these securities adequately disclosed to the investors? That will be the real pressure point. And it may be difficult to make the cases. I suspect there are already subpoenas out to a number of other institutions where they are combing through e-mail communications to see whether or not the assessment of risk in those e-mails varies from the risk portfolios presented to investors when they acquired the securities.”
[For a complete transcript of the Interview with Craig Margolis, see 22 Corporate Crime Reporter 37(12), September 29, 2008, print edition only.]
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