LAWFUEL – The Law Newswire – The next messy chapter of the subprime le…

LAWFUEL – The Law Newswire – The next messy chapter of the subprime lending saga could include fraud charges for investment banks and companies that didn’t fully tell investors how risky subprime-related securities were.

Within the next six months, it should be clear how regulators will proceed against those companies, said Michael Malloy, a former U.S. Securities and Exchange Commission enforcement attorney.

“Odds being what they are, somebody’s going to get hooked,” said Mr. Malloy, who now teaches at the University of the Pacific’s McGeorge School of Law.

“From an investigative point of view, they’ll be looking at how much of this was the result of stupidity and misfortune and how much is broader manipulation.”

The broader manipulation could include failing to appropriately disclose the value or the risk of securities backed by subprime loans, which could constitute fraud, experts say.

Rising defaults in U.S. subprime loans have unleashed chaos in world financial and credit markets in recent weeks.

Many subprime mortgages are packaged into mortgage-backed securities and collateralized debt obligations, bundles of securities with differing yields and credit ratings which are sold to hedge funds, banks and pension funds.

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