* Banks disclose "Wells notices" from SEC staff
* Investigations focused on mortgage bond deals
* Latest sign of intensifying government scrutiny
* Goldman also faces MF Global inquiries
By Rick Rothacker and Lauren Tara LaCapra
Feb 28 Goldman Sachs Group Inc and
Wells Fargo & Co may face federal enforcement action
related to mortgage-backed securities deals leading into the
financial crisis, the banks said in regulatory filings on
The disclosures are the latest sign government officials are
stepping up action against banks that packaged home loans into
bonds during the housing boom. The underlying mortgages later
soured, spurring billions in losses for investors.
Goldman and Wells Fargo both said they received so-called
"Wells notices" from the U.S. Securities and Exchange
Commission. A Wells notice indicates SEC staff plan to recommend
that the agency take legal action and gives a recipient a chance
to mount a defense.
Goldman received its Wells notice on Feb. 24, relating to a
$1.3 billion subprime mortgage-backed securities deal in late
2006 that the bank underwrote. Goldman said it will be making a
submission to the SEC related to the case and communicating with
SEC staff to address their concerns.
The bank has also received inquiries from governmental,
regulatory bodies and self-regulatory entities concerning
certain transactions Goldman entered with MF Global Holdings Ltd
prior to the brokerage firm's bankruptcy filing.
Goldman said it is cooperating with all such inquiries.
Reuters earlier reported that Goldman purchased $1.3 billion
worth of commercial paper from MF Global days before its
bankruptcy on Oct. 31.
Wells Fargo said its Wells notice related to its disclosures
in offering documents for mortgage-backed securities. The bank
said it is providing information requested by various regulatory
agencies in connection with their investigations.
Representatives of Goldman, Wells Fargo and the SEC declined
The U.S. government is under intense pressure to show that
it can hold Wall Street accountable for its contribution to the
subprime housing meltdown that began in 2007.
Last month, the Obama administration set up a special task
force to investigate practices related to mortgage-backed
securities. A settlement this month with five major banks,
including Wells Fargo, over foreclosure-related abuses allows
probes of mortgage bonds to go forward.
Several banks, including Goldman and Wells Fargo, have
already reached multi-million-dollar settlements with the SEC
over crisis-era derivatives deals tied to subprime mortgages.
The Wells notices detailed on Tuesday indicate the SEC is
pursuing cases related to securitization of the underlying bonds
In January, U.S. Attorney General Eric Holder said the
Justice Department issued civil subpoenas focusing on
mortgage-backed securities to 11 different financial
institutions. He said the department had discussed the subpoenas
with the SEC and added these subpoenas did not duplicate earlier
requests from that agency.
Wells Fargo, the fourth-largest U.S. bank by assets, said it
is also facing investigations related to home loan origination
practices. San Francisco-based Wells is the largest originator
of mortgages in the United States.
Last week, Citigroup Inc said it received a subpoena
from federal and state regulators seeking information about the
bank's "issuing, sponsoring, or underwriting" of mortgage-backed
The inquiries included a subpoena from the civil division of
the U.S. Department of Justice, which Citigroup received on Jan.
27, it said in its annual report. That same day Attorney General
Eric Holder said the department issued civil subpoenas to 11
financial institutions as part of a new effort to investigate
misconduct in the packaging and sale of home loans to investors.
In its annual report filing last week, Bank of America Corp
said it has "received a number of subpoenas" from
regulators and other authorities about the bank's underwriting
and issuance of mortgage-backed securities.