Wall Street companies close to reaching major deal with U.S. regulators

by MPA25 Feb 2015
Meghan de St. Aubin

Morgan Stanley and Goldman Sachs Group Inc. are close to reaching a deal with federal litigators regarding allegations the two Wall Street companies mislead investors in mortgage bonds that decreased in value during the economic downturn.
Goldman Sachs recently reported that it was informed of the civil lawsuit stemming from a U.S. government’s mortgage-bond investigation in December. Morgan Stanley is currently in the early stages of attempting to settle the investigation with the Justice Department, with costs approximately exceeding $1 billion.
The government has already closed multibillion-dollar settlements with big banks such as J.P. Morgan Chase & Co, Bank of America Corp. and Citigroup Inc.
Goldman Sachs received information from the U.S. Attorney General’s office for the Eastern District of California in December stating that the government had “preliminarily concluded” the firm had violated federal law involving underwriting, securitizing and selling mortgage bonds, said Goldman Sachs in a regulatory filing.
Goldman Sachs was asked to respond to allegations from federal officials who also said the firm could file a civil action case.
Similarly, Morgan Stanley reported it was told in May by the California Attorney General’s Office that they had reached their own “preliminary conclusions” the firm had made “misrepresentations to a state pension fund”, according to The Wall Street Journal.
Goldman Sachs said it faces class action-lawsuits that claim they violated antitrust laws and the Commodity Exchange Act by manipulating the ISDAFix
The company also reported it had redeemed approximately $2.97 billion in hedge-fund investments since March 2012, to comply with the Volcker rule, which limits how large banks put their own money at risk.  Goldman reportedly sold $762 million in regards to those investments in 2014.
Currently, Goldman Sachs has raised their legal losses range to $3 billion from 2.5 billion in November.


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