According to a February 1, 2012 Wall Street Journal article, the U.S. Attorney’s office is planning two charge at least two Credit Suisse bond traders with over inflating the value of mortgage bonds to increase their bonus payouts. People familiar with the case said Credit Suisse would not be charged. Also, the Securities and Exchange Commission (SEC) is planning to file similar charges.
The over inflation of mortgage bond prices was central to the volatility in the markets during 2008. Banks and brokerages were reluctant to write down the bond prices and when the ultimately did, it set of huge turmoil in the markets and ultimately lead to the demise of investment banking giants Bear Stearns (now JP Morgan) and Lehman Brothers. In February 2008, Credit Suisse ultimately wrote down approximately $2.85 billion as a result of the declining bond valuations and released four of its bond traders. This was just one month before the failure of Bear Stearns.
Mortgage backed securities, many of which were created out of subprime mortgage debt, were packaged up and divided into tranches for resale to individual investors. Many of these investors had exposure to them in the form of bond mutual funds and structured products like principal protected notes. When the credit markets collapsed, many of these securities lost all or most of their value…leaving many investors with huge unrecoverable losses.
If you lost money in mortgage related securities, please contact our office for a free case evaluation. Thank you.