SEC in Talks to Settle Mortgage-Bond Probe
The probe focused on the sale of pools of mortgages and other loans as collateralized debt obligations, or CDOs, to investors, The Wall Street Journal reported without naming its sources. The investigation involves banks including Citigroup Inc. (C), JPMorgan Chase (JPM) and Morgan Stanley (MS).
The investigation is looking at possible conflicts of interest, including how the assets in the CDOs were selected and valued and how much influence other clients had in that process.
In total, banks cranked out more than $1 trillion worth of CDOs. They would sometimes bet against the security they created or allow other clients to do. Some of these bets allowed banks to benefit from the crash in the U.S. housing sector. Others went badly wrong.
The settlement talks may still fall apart, The Wall Street Journal reported.