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Who broke the rule? Everyone on Wall Street is under investigation

It is starting to feel as if everyone on Wall Street is under investigation by someone for something.

business Updated: May 14, 2010 22:26 IST

It is starting to feel as if everyone on Wall Street is under investigation by someone for something.

News that New York State prosecutors are examining whether eight banks hoodwinked credit ratings agencies opened yet another front in what is fast becoming the legal battle of a decade for the big names of finance.

Not since the conflicts at the centre of Wall Street stock research were laid bare a decade ago, eventually resulting in a $1.4 billion settlement, have so many investigations swirled across the financial landscape.

Nearly two years after Washington rescued big banks with billions of taxpayer dollars, half a dozen government agencies are still trying, with mixed success, to peel back the layers of the collapse to determine who, if anyone, broke the rules.

The Securities and Exchange Commission, the Justice Department, the United States attorney’s office and more are examining how banks created, rated, sold and traded mortgage securities that turned out to be some of the worst investments ever devised.

The latest salvo came on Thursday from Andrew M. Cuomo, the New York attorney general. His office began an investigation into whether banks misled major ratings agencies to inflate the grades of subprime-linked investments.

The SEC has been examining major banks’ mortgage operations since last summer, but so far, it has filed a civil fraud claim against just one big player: Goldman Sachs.

But legal experts are already starting to handicap potential outcomes, not only for Goldman but for the broader industry as well. Many suggest that Wall Street banks may seek a global settlement akin to the 2002 agreement related to stock research.

Indeed, Wall Street executives are already discussing among themselves what the broad contours of such a settlement might look like.

First Published: May 14, 2010 22:24 IST