From the WSJ:
Wall Street Firms Are Subpoenaed
New York Examines Treatment
Of Debt Tied to Risky Mortgages
By KARA SCANNELL
December 5, 2007; Page C2
New York state prosecutors have sent subpoenas to several Wall Street firms seeking information related to the packaging and selling of debt tied to high-risk mortgages, people familiar with the matter say, the latest legal woe to hit the stressed industry.
The subpoenas, sent by the office of New York state’s attorney general, Andrew Cuomo, are broadly written and request information from firms including Merrill Lynch & Co., Bear Stearns Cos. and Deutsche Bank AG, people familiar with the matter say.
The review, part of a broader investigation into the mortgage industry, is examining how adequately the investment banks reviewed the quality of mortgages before packaging them into products that were then sold to investors, these people say. The subpoenas also requested information about how the debt was pooled into securities, including the banks’ relationship with credit-rating firms.
A spokesman for Mr. Cuomo couldn’t be reached. A Merrill spokesman declined to comment on the subpoena, saying: “We always cooperate with regulators when asked to do so.” Bear Stearns and Deutsche Bank declined to comment.
The state-prosecutor inquiry is the latest twist in the fallout stemming from residential subprime mortgages. A rise in defaults and foreclosures, particularly among low-end borrowers, has whipsawed global stock and bond markets, led to the dismissal of two Wall Street chief executives, and resulted in losses by banks, hedge funds and securities firms. The Securities and Exchange Commission has opened about two-dozen investigations stemming from the collapse of residential subprime mortgages, a person with knowledge of the situation said. In addition, the role of credit-rating firms is being examined by federal and state regulators.