Signup for our free newsletter:

Bring on the Subpoenas

Written By Brian Hicks

Posted December 5, 2007


To the millions of retail investors who lost their shirts in the Internet Bubble, former New York Attorney General (AG) Eliot Spitzer is something of a folk hero.

That’s because when it came to Wall Street chicanery, Spitzer was something of a one man wrecking crew, working in ways that bodies like the SEC would not. Analyst fraud, illegal trading, and an ocean of conflicts of interests, Spitzer exposed them all.

In fact, it was his investigation of hot shot tech analyst Henry Blodgett and Merrill Lynch that exposed the late 90’s tech recommendation machine for what it was–all hype.

Following in Spitzer’s footsteps these days is the latest New York (AG), Andrew Cuomo.

Not surprisingly, his target is not really any different than Spitzer’s was. Just swap out the "tech bubble" for the "housing bubble" and you get the picture of what he’s after.

From the New York Times by Jenny Anderson entitled: Wall St. Firms Subpoenaed in Subprime Inquiry

"Attorney General Andrew M. Cuomo of New York has subpoenaed major Wall Street firms including Merrill Lynch, Morgan Stanley and Deutsche Bank, seeking information about the business of packaging and selling subprime mortgages, according to people briefed on the subpoenas.

The subpoenas, sent out in late summer, are part of a wide review of the mortgage industry by Mr. Cuomo’s office into the mortgage business. The subpoenas were reported today by The Wall Street Journal.

The attorney general is interested in how the securitization business worked and what level of due diligence Wall Street banks did on the mortgages they bought to resell, including who the securities were ultimately sold to and with what kind of disclosures. The office is expected to look at deals that have exhibited high default rates, according to people briefed on the subpoenas.

Bear Stearns and Lehman Brothers were also sent the subpoenas. Goldman Sachs was not.

Mr. Cuomo recently subpoenaed Freddie Mac and Fannie Mae in a broad look at what he called "widespread collusion" between real estate appraisers and lenders, including Washington Mutual, to inflate home prices. He filed suit against First American Corporation, alleging they artificially inflated appraisals to win Washington Mutual’s business."

Now if these developments up on the Street don’t have more than a few people sweating through their crisp white shirts, I’d be more than a little shocked.

Because in my mind there is nothing scarier than an ambitious AG on mission.

Here’s a bet that Cuomo finds quite a bit under those rocks when he starts lifting them up.