According to the New York Post, sources say that the US Attorney’s office in Connecticut is going after Royal Bank of Scotland (RBS) and at least two traders over complex debt securities that investors bought up through 2013. Ex-RBS banker Matthew Katke, who pled guilty earlier this year to inflating collateralized loan obligation prices, reportedly provided cooperating testimony in the case.
Federal prosecutors are also reportedly pursuing criminal charges against RBS. That investigation is over the alleged sale of flawed mortgage securities related to the 2008 financial crisis.
The Wall Street Journal says that sources have told them that prosecutors are looking at a $2.2B deal that repackaged home mortgages into bonds eight years ago. It was just two years ago that RBS settled a Securities and Exchange Commission case that described the lead banker as attempting to push the deal through even though the diligence department had raised red flags.
The RBS probe mirrors the $150M civil settlement the bank reached in 2013. That case resolved SEC claims accusing it of misleading investors on a $2.2B subprime mortgage offering.
The Commission claims that RBS said that the loans generally complied with underwriting guidelines even though nearly 30% of the loans should not have been included because they strayed so far from said guidelines.
Federal prosecutors are reportedly pursuing similar charges against J.P. Morgan Chase & Co. (JPM). That probe is said to involved two people and a residential-mortgage deal and stems from a civil probe in Sacramento that involved prosecutors discovering a memo written by a bank employee cautioning her superiors that they were placing bad loans into the securities. Her warnings were reportedly disregarded. In 2013, J.P. Morgan settled those charges for $9 billion and settled a separate case by the Federal Housing Finance Agency for $4 billion.
While the firm did not admit or deny wrongdoing, it did consent to statements of facts that detailed the alleged misconduct. However, in private negotiations leading up to the deal, J.P. Morgan maintained that those allegations were not criminal. The bank has acknowledged that the DOJ is conducting a criminal probe.
Meantime, prosecutors are continuing their civil probes against banks that have yet to pay fines for the way they dealt with mortgage securities prior to the 2008 financial crisis. The Wall Street Journal reports that federal prosecutors are preparing a case against UBS Group AG (UBS).
In a recent securities filing, the Swiss banking giant said that the U.S. Attorney’s office in Brookline, MA was looking at certain transactions related to its mortgage securities business that took place from 2005 to 2007. Because there is a 10-year statute of limitations for how long prosecutors have for pursuing charges related to misconduct impacting a financial institution and connected to the 2008 crisis, prosecutors only have a few more years to bring their cases.
RBS facing new charges over sale of loan securities, NYPost, November 24, 2015
U.S. pursuing criminal cases against RBS, JPMorgan executives: WSJ, Reuters, November 17, 2015