A federal judge on Monday recommended that e-mails and other data collected by a large due-diligence firm for Wall Street banks should be turned over to the Department of Justice (DOJ) [official website], a move that may determine which banks the government will bring to court for their part in the 2008 financial crisis [JURIST news archive]. In October the government issued a subpoena seeking banking information retained by Wall Street's largest due-diligence firm Clayton Holdings, LLC [corporate website; Yahoo backgrounder] as part of a nationwide investigation of the "assembly, underwriting and issuance of residential mortgage-backed securities that contributed to the financial crisis." Magistrate Judge Donna Martinez, in a recommended ruling, found that Clayton Holdings failed to show that the government's subpoena was overly broad and burdensome. "[T]he relevance of the agency's subpoena requests may be measured only against the general purposes of its investigation," Martinez wrote. "The government's investigation into abuses in the residential mortgaged-backed securities market is broad and extensive. The government maintains that Clayton's due diligence reports, which provided its clients with qualitative information regarding the loans it reviewed, are relevant and within the scope of the government's investigation."
The DOJ has not publicly identified the banks under investigation. However, several banks have faced legal challenges stemming from the financial crisis of 2007-08. In August the DOJ filed suit [JURIST report] against Bank of America (BOA)[corporate website], claiming that the corporation misled investors about securitized loans worth more than $850 million. In March Citigroup, Inc. [corporate website] agreed to pay out $730 million [JURIST report] to settle a lawsuit brought by investors claiming the financial services corporation misled investors about its condition during the financial crisis. In January BOA reached a $10 billion settlement [JURIST report] with Fannie Mae over faulty lending practices. Last October US Attorney Preet Bharara [official profile] filed a $1 billion civil lawsuit against BOA [JURIST report] in the US District Court for the Southern District of New York (SDNY), with similar claims that BOA subsidiary Countrywide Financial committed fraud in originating residential mortgages. Last September BOA settled [JURIST report] a $2.43 billion class action lawsuit with investors over their $18.5 billion acquisition of Merrill Lynch. In July 2012 BOA agreed to pay $375 million [JURIST report] in a settlement with bond insurer Syncora Guarantee [corporate website] over claims that Syncora was misled into insuring toxic mortgage-backed securities of Countrywide Financial. Also that month a federal judge rejected [JURIST report] a motion by BOA to dismiss a shareholder lawsuit alleging BOA's purposeful concealment of the bank's exposure to billions of dollars in loan repurchase claims and its problematic reliance on an electronic loan registry.