Goldman, Wells Fargo to Face SEC Scrutiny

SEC scrutinizing Goldman & Fargo

SEC scrutinizing Goldman & Fargo

The federal regulators warned Goldman Sachs Group Inc. and Wells Fargo & Co., the biggest U.S. home lender, of facing civil assertions attached to sales of mortgage-backed securities. The companies have been told that the U.S. Securities and Exchange Commission may take legal action against them in civil court over allegedly careless revelations of the risks of subprime mortgage bonds united to the financial crisis.

What could possibly be the reason for the SEC scrutiny?

Goldman Sachs believes that the SEC is taking into account filing charges against the bank due to its role in a late 2006 subprime mortgage bond. The company told a business magazine that the charges would relate to the disclosures Goldman had made as sponsor of an offering of $1.3 billion worth of mortgage-backed securities. Goldman revealed the investigation in its 10-K, which it filed late Tuesday.

Wells Fargo, the biggest U.S. home lender, and Goldman both said they received so-called “Wells notices” from the U.S. Securities and Exchange Commission amid government inquiries into whether the company properly described facts and risks in offering documents. A Wells notice indicates SEC staff plan to recommend that the agency take legal action and gives a recipient a chance to mount a defense.

Wells Fargo was among five mortgage servicers that agreed this month to a $25 billion settlement of state and federal probes into shoddy foreclosure practices. The deal allowed regulators to continue pursuing the industry over claims regarding the packaging of loans into securities. An industrial magazine reported that the notices are sent only when the SEC lawyers intend to recommend the agency bring claims.

Do you know what a Wells notice is?

Apparently, a Wells notice is the Securities and Exchange Commission’s way of telling an individual or firm that it plans to bring charges and gives the subject a chance to argue why the charges shouldn’t be filed.

Goldman said in its 10-K, “The firm will be making a submission to, and intends to engage in a dialogue with, the SEC staff seeking to address their concerns.” But there have been no comments on whether any individuals at Goldman received Wells notices as well. In the past the Securities and Exchange Commission has been disapproved of accusing banks without naming specific individuals.

“The firm will be making a submission to, and intends to engage in a dialogue with, the S.E.C. staff seeking to address their concerns,” Goldman Sachs declared in a statement.

Federal regulators are examining how banks packaged and sold home loans to investors after four years of mounting mortgage defaults suggested unprecedented government bailouts of the financial system,. They are also looking at whether the San Francisco-based bank may have violated fair lending laws or other regulations when making home loans The SEC is searching for evidence that firms failed to reveal underlying credit weaknesses in mortgage pools and delinquencies.

Robert Khuzami, S.E.C.’s enforcement director, stated at a news conference, “Among the S.E.C.’s targets was disclosure: whether banks selling mortgage-related investments failed to fully account for the riskiness of the home loans bundled in the securities.”

 

Dhwani Shah

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