SEC in Talks to Settle Mortgage-Bond Probe

Regulators are in talks with several major banks to settle a number of investigations of their sales of mortgage-bonds, The Wall Street Journal reported.

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.

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Earlier this year, Goldman Sachs (GS) agreed a $550 million settlement with the SEC over charges that it misled investors over a CDO. The SEC said Goldman failed to tell investors that it had created the CDO with input from a hedge fund that wanted to bet against it.

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.