2:00 pm Oct. 2, 2012
After filing suit against Bear Stearns and its parent company J.P. Morgan, alleging the company's quality control practices for safeguarding mortgage-backed securities were "a sham," Attorney General Eric Schneiderman hinted at the prospect of further mortgage-related action in a conference call this afternoon.
"My expectation is that there will be more cases to come, involving other institutions, and that we'll continue to work with our federal partners to conduct an efficient, effective investigation," Schneiderman told reporters.
Earlier this year, Schneiderman was named a co-chair of a new federal task force investigating the lending practices that led to the housing collapse. The task force allows for cooperation among state and federal agencies and for broader legal jurisdiction, though the case against Bear Stearns didn't exercise those added powers, opting instead to bring the case under New York's Martin Act, which has a lower standard for asserting fraud claims in civil court.
But, as one reporter pointed out on the call, the Martin Act also contains a five year statute of limitations for criminal cases.
"It would be tough for us to bring criminal charges, which is why we're bringing a broad civil complaint," Schneiderman said.
He later hinted that criminal action could potentially be brought under federal laws.
"I don't want to comment on the rest of the working group. We think the Martin Act … does pose a problem for us—not to say there aren't other things underway."
Later he said, "We're not foreclosing anything ... Nothing is off the table."
Schneiderman was asked about the timing of today's announcement, which comes just over a month from Election Day, and on the eve of the first presidential debate.
"I'll let others to speak to that," he said. "My office began this investigation last spring. We first subpoenaed the defendants in June of 2011, so to the extent that they're suggesting that they haven't had a long back and forth with my office and a chance to make their arguments, that's not true. And we've been at it since the spring of 2011.
"The working group started to be pulled together in February of this year. This is the first action. There will be more to come. And that's why we are where we are today. We bring cases when they're ready to proceed."
Schneiderman declined to say whether he would pursue cases against the loan originators, pointing the finger at the securitizers as the "driving force" behind the "securitization machine."
"If it hadn't been for the securitization machine and the demand, which became really insatiable, for mortgages to put into mortgage backed securities, so that the investment banks and the banks could make money, the lenders would not have had the leeway they had to make so many bad loans," he said. "The bad loans were a result of the desperation, that's reflected in our allegations, of the banks to just get more mortgages of whatever quality so they could keep making money on their securities."
Schneiderman said his office had yet to determine a dollar figure for the alleged violations, but noted that his suit involves the conduct broadly, and not specific cases
"I think it is important to note that this is a platform case," he said. "This is not, as most previous cases have been, about one deal or five deals or ten deals. This is about the entire course of their business, any deals done using this due diligence system are at issue in this litigation."
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