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What the Subprime Crisis Could Mean for Your Company

By Charles A. Ross
May 27, 2008

The continuing economic crisis, driven in large measure by the subprime mortgage meltdown, is affecting major segments of the economy. Not a day goes by that there is not something in the press regarding the effects of billions of dollars of mortgage failures. Criminal investigations into all industries involved in the process are underway. The Department of Justice is considering creating a task force, much in the same way the Bush Administration created the Corporate Fraud Task Force in the aftermath of the Enron failure. Indeed, in a recent Business Week article, investigators stated that probes are looking at the 'full gamut' of participants in the process of originating and securitizing subprime mortgages. The FBI has predicted a landslide of mortgage fraud cases.

Citing the opportunities for fraud created by the increasing reliance on third-party brokers, it consolidated all of its mortgage fraud programs within its Financial Institution Fraud Unit in fiscal year 2006. Local regulators and prosecutors have issued subpoenas to probe allegations of malfeasance and deception. These potentially sweeping and wide-ranging investigations will likely include probes into the lending industry, including mortgage lenders, brokers, and bankers, as well as a thorough look at the securitization side, which includes investment banks, broker-dealers, and ratings agencies. Accounting firms and law firms will be scrutinized as well.

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