CHICAGO U.S. government prosecutors are
investigating whether Swiss banking giant UBS misled investors
by reporting inflated prices of mortgage-backed securities it
held despite knowing those valuations had eroded, the Wall
Street Journal said on Saturday.
The Journal, quoting unnamed sources familiar with the
probe, said the investigation by the U.S. Attorney for the
Eastern District of New York had not yet issued subpoenas.
But the sources noted that the New York prosecutors work
closely with the U.S. Securities and Exchange Commission. The
SEC recently expanded its own probes of both UBS and Merrill
Lynch and Co Inc pricing of mortgage securities, a move which
empowers the SEC to issue subpoenas, they said.
UBS was not immediately available for comment. A Merrill
Lynch spokesman had no comment.
UBS, Europe's hardest-hit bank from the credit crisis, last
week raised its subprime write-downs to $18.4 billion.
On Friday, the bank also urged its shareholders to dismiss
a plan from some dissenting shareholders demanding an external
probe into the bank's subprime woes.
The U.S. Justice Department on Wednesday said it was
looking into whether fraud occurred in the packaging and
selling of complicated mortgage securities like collateralized
debt obligations (CDOs), the Journal said.
The Federal Bureau of Investigation is looking at 14
unnamed companies in that probe, the agency said.
On Friday, the top securities regulator in Massachusetts
filed a civil complaint against Merrill Lynch, accusing the
brokerage of selling unsuitable subprime mortgage-related
securities to the city of Springfield.
Massachusetts Secretary William Galvin seeks to take away
Merrill's profits from a transaction in which it sold CDOs to
the city. Merrill invested about $14 million of the city's
money in CDOs last year, only to see most of the value erased.
Separately, the city of Springfield said on Thursday that
Merrill had agreed to pay it $13.9 million after determining
the city had not approved the purchase of the CDOs.
UBS remains under fire at home. Shareholder advocacy group
Ethos in December called for more clarity from UBS over its
subprime losses, urging an independent probe.
But UBS on Friday said there was no need for a separate
investigation given that the country's EBK banking watchdog was
already probing the reasons which led to its losses.
UBS last week stunned investors with its third round of
subprime write-downs. It reported heavy fourth-quarter losses
and a total 2007 net loss of 4.4 billion Swiss francs ($4.07
(Reporting by Christine Stebbins, editing by Jackie Frank)