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September 24, 2008

FBI’s Secret Investigations at Wall Street

Fannie Mae and Freddie Mac are the two new cases that the FBI has been called in to investigate. The agency has already been investigating the recent financial collapses of Lehman Brothers and AIG, based on allegations for mortgage fraud.

You might think that I am confusing FBI with SEC. (Un)fortunately, I am not. The Securities and Exchange Commission is of course also investigating the aforementioned financial institutions for civil violations. And as if that is not enough, there are quite a few more companies that are under FBI investigation according to rumours in the financial circles. A few names were mentioned (and published on Bloomberg news) including IndyMac Bancorp Inc. and Countrywide Financial Corporation, which has in the meanwhile been purchased by Bank of America.

FBI Director Robert Mueller, testified in Congress last week, and assured them that those responsible will receive the justice they deserve. I guess they will need to dig very deep in order to get to the bottom of this.

Fannie Mae, Freddie Mac, and AIG are not new players in this game. They have restated their books before in the past and corrected billions of dollars in what they claimed to be accounting errors. In particular, Fannie Mae was charged in 2006 for hiding $10.3 billion in losses from 2002 through 2004 in order to maximise bonuses. Freddie Mac was also fined in 2003 and was forced to restate earnings from 2000 through 2002 after it discovered errors related to derivates, which resulted in reporting around $5 billion in earnings in future quarters.

Good luck Robert! I hope you find the corpses you are looking for… it stinks!

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