Mortgage collapse inquiry widened

Federal investigators have expanded their broad investigation into the collapse of the subprime mortgage market to include Fannie Mae, Freddie Mac, Lehman Brothers and AIG – four companies at the heart of the current market turmoil.

Enforcement officials are under growing pressure to hold companies and individuals responsible for the worst financial crisis since the Great Depression.

In recent weeks, various regulators, both at the federal and state level, have been revealing the existence of investigations into the collapse of the subprime mortgage market and allegations of market manipulation.

The inquires into Fannie, Freddie, Lehman and AIG are part of a broader probe and still at early stages, according to people familar with the matter.

Investigators are focusing on whether fraud or other criminal activity helped cause financial strains at the companies. The FBI declined to comment.

This month, mortgage financiers Fannie and Freddie and insurance group AIG came under the control of the government and investment bank Lehman Brothers filed for bankruptcy. The US government is now working on a plan to create a $700bn (€478bn, £378bn) financial rescue fund.

AIG said yesterday: "We don't have details about the FBI investigation. Of course, we will co-operate with the FBI." A spokesman for Lehman declined to comment. Spokesmen for Fannie Mae and Freddie Mac did not immediately return calls for comment.

Robert Mueller, director of the FBI, told the Senate judiciary committee last week that the agency was conducting two dozen investigations into larger companies that "may have engaged in misstatements in the course of what transpired during this financial crisis".

At the end of June, the FBI had 19 "large corporations" under investigation.

At that time, Mr Mueller said the majority of the corporate cases involved accounting fraud, insider trading and failures to disclose, with criminal intent, the proper evaluation of securitised loans and derivatives. The agency has also more than 1,400 investigations into brokers, appraisers, buyers and lenders.

The FBI has been working closely with the Securities and Exchange Commission and the Department of Justice on many cases.

The FBI was "going to be vigilant in investigating whether fraud or lawbreaking contributed to the ongoing financial crises", Mr Mueller said last week.

However, like the cases of Enron and Worldcom and the savings and loan scandals of the 1980s, the investigations are likely to be complex.

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