Reply #8: New York may use potent law vs mortgage banks: report [View All]

[ozymandius]

NEW YORK (Reuters) - New York Attorney General Andrew Cuomo, who is probing how Wall Street banks packaged and sold mortgage bonds, may use the same powerful state law that predecessor Eliot Spitzer wielded to secure billions of dollars in settlements from investment banks and mutual fund firms, the Wall Street Journal reported Wednesday, citing unnamed sources.

New York's 1921 Martin Act is considered one of the most potent legal tools in the United States because it broadly defines securities fraud and does not require prosecutors to prove intent.

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Prosecutors want to see if underwriters failed to disclose warnings from Clayton and other firms like it about loans that didn't meet an originator's lending standards, the paper said.

Disclosing potential problems might have prompted credit-rating agencies to assign lower grades and make the bonds harder to sell.

The attorney general also is examining if Wall Street firms concealed information about shortcomings from rating agencies, the people familiar with the matter told the Journal.

http://news.yahoo.com/s/nm/20080131/bs_nm/wallstreet_mortgages_probe_dc