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FBI looking at 14 firms in lending investigation

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Associated Press / January 30, 2008

WASHINGTON - The Federal Bureau of Investigation yesterday said it is investigating 14 companies for possible fraud or insider trading violations in connection with loans made to risky borrowers, and investments spun off of those loans.

FBI officials did not identify the companies under investigation but said the wide-ranging probe, begun last spring, involves companies across the industry, from mortgage lenders to financial firms that bundle home loans into securities sold to investors.

The FBI is working in conjunction with the Securities and Exchange Commission, said Neil Power, chief of the FBI's economic crimes unit in Washington.

The development comes as authorities in New York and Connecticut investigate whether Wall Street banks hid crucial information about high-risk loans bundled into securities that were sold to investors.

Power said federal authorities are looking into the practices of so-called subprime lenders, as well as potential accounting fraud committed by financial firms that hold these loans on their books or securitize them and sell them to other investors.

Referring to certain unnamed bankrupt subprime lenders, Power said there are "some irregularities there that we're looking into," including the timing of stock sales by executives. Dozens of subprime lenders have filed for bankruptcy protection in the past year, most prominently New Century Financial Corp.

Power also said law enforcement officials are looking at whether home builders manipulated financial statements to inflate revenues.

An SEC spokesman declined to comment. The agency has said about three dozen investigations related to the mortgage market meltdown are ongoing.

Defaults on subprime loans have risen over the past 12 months and are primarily responsible for the credit crunch that has disrupted global financial markets.

Morgan Stanley, Goldman Sachs Group Inc., and Bear Stearns Cos. all disclosed yesterday that they are cooperating with requests for information from various agencies.

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