Speech by SEC Staff:
Remarks at Joint News Conference to Announce RMBS Working Group
Director of the SEC’s Division of Enforcement
U.S. Securities and Exchange Commission
U.S. Department of Justice
January 27, 2012
Good morning. Mortgage products were in many ways ground zero in the financial crisis.
Individual mortgages were pooled and sliced and diced into sophisticated securities that were a world away from the house, on a street, in a town somewhere in America where a family had realized their dream – the dream of buying a house they could call a home.
A few invested directly in these sophisticated securitized mortgage products, called Residential Mortgage Backed Securities (RMBS).
Many more had exposure to the performance of these investments, even if they did not own them directly, or had the performance of their other investments tied to these products.
Regardless of how they were connected to these products, many shared the belief that these investments were safe and secure, the right investment to protect their financial security, fund their retirement, and pay for their kids' education.
That turned out to be terribly wrong.
These mortgage products suffered unprecedented losses, and the pain and loss that followed is known all too well.
The job of the SEC and my fellow law enforcement colleagues is to hold accountable those persons, those institutions who lied, who cheated and who misled investors in the sale of these products.
Every failure does not mean that the law was broken, but all of us are committed to identifying the violations that did occur and prosecuting them.
That is why I am so pleased to help lead the RMBS Working Group.
Now each of us here today may have different jurisdiction or different expertise but one thing unites us: a drive to do what it takes to make sure that our efforts leave no stone unturned, no dark corner unexposed to the light.
At the SEC, we have been incredibly busy in the pursuit of financial crisis cases.
We have focused on misconduct by those at the highest corporate levels and by institutions with the greatest involvement in the products, transactions and practices that gave rise to the financial crisis.
So far, we have filed actions against nearly 90 such individuals and entities involving public companies that failed to disclose the increasing risks in their mortgage businesses such as Countrywide, New Century, and IndyMac; against funds and investment advisers that made misleading disclosures when offering funds holding mortgage and other financial products such as Morgan Keegan, State Street Bank and Trust, Charles Schwab and Reserve Fund; against top executives at Fannie Mae and Freddie Mac for failing to accurately disclose subprime exposure; and against banks making misleading disclosures about subprime exposure and the structure of even more complex mortgage products called CDOs such as Goldman Sachs, JPMorganChase and Wachovia.
In these actions, we have named approximately 45 CEOs, CFOs and other senior corporate officers.
The SEC’s expertise and experience in mortgage products will be greatly enhanced by our participation in the RMBS Working Group.
We have a long history of successful collaboration with our law enforcement colleagues, including the Department of Justice, FBI, U.S. Attorney Offices, State Attorney’s General, and other authorities around the country. Many of us are on the phone with each other weekly, if not daily, moving our investigations forward.
And through the leadership of the Financial Fraud Enforcement Task Force, which we have co-chaired since its creation in November 2009, we have strengthened these ties – sharing knowledge and leveraging skills and resources in a way that helps all of us to hold violators accountable.
Today’s announcement is another positive step in this direction.
The Working Group will enhance coordination, efficiencies and the sharing of expertise. It will ensure that we pool the different capabilities, resources, legal theories and remedies that each of us bring to the effort.
Information sharing and collaboration among the widest group of partners, including the State Attorneys General that are part of the Working Group, is in everyone’s interest.
To be clear, investigations into RMBS offerings have been ongoing at the SEC. Along with experts across the agency, we have a specialized unit dedicated to the effort.
We already have issued scores of subpoenas, analyzed more than approximately 25 million pages of documents, dozens and dozens of witnesses, and worked with our industry experts to analyze the terms of these deals and the accuracy of the disclosures made to investors.
We are looking for evidence that a firm failed to disclose important information when selling these securities – for example, misleading disclosures about the credit quality, conformity with underwriting guidelines, underlying property valuations, and delinquency and defects of mortgages in the RMBS pools.
These efforts will be greatly aided by the contributions from my fellow Working Group members.