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FBI investigating major financial institutions for potential fraud: reports

[JURIST] The Federal Bureau of Investigation [official website] is currently investigating Fannie Mae, Freddie Mac, Lehman Brothers, and AIG [corporate websites] along with 22 other financial institutions for possible mortgage fraud [FBI backgrounder], US media outlets reported Tuesday. The investigations follow a market collapse that led to a Bush administration proposal [fact sheet; JURIST report] circulated over the weekend that would authorize the Treasury Department to acquire as much as $700 billion in mortgages and other loans. Though FBI officials would not comment on which firms are involved in the ongoing inquiries, ABC News reported [text] that FBI spokesman Richard Kolko has confirmed 26 "pending corporate fraud investigations involving subprime lenders." AP reported [text] that the investigations are in the "early stages." The Wall Street Journal has more.

In June, the FBI announced that more than 400 people had been indicted [press release; JURIST report] in connection to what has been termed the US "sub-prime mortgage collapse." The vast majority of the indictments involved fraud related to individual mortgages, with the FBI focusing on lending fraud, foreclosure rescue scams and mortgage-related bankruptcy schemes, which account for more than $1 billion in losses. Earlier month, mortgage giants Fannie Mae and Freddie Mac were placed into a conservatorship under the Federal Housing Finance Agency [CNN report], investment bank Lehman Brothers filed Chapter 11 bankruptcy [AP report], and the Federal Reserve took control of nearly 80% of the shares [Reuters report] of leading insurer AIG. New York Attorney General Andrew Cuomo has also announced a state investigation [JURIST report] into whether some investors used illegal methods to profit from the recent declines in banking and insurance stocks, possibly by short-selling [Forbes backgrounder] stock and spreading of false information to illegally gain from the devaluations in Lehman Brothers, AIG and other stocks.

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Paper Chase is JURIST's real-time legal news service, powered by a team of 30 law student reporters and editors led by law professor Bernard Hibbitts at the University of Pittsburgh School of Law. As an educational service, Paper Chase is dedicated to presenting important legal news and materials rapidly, objectively and intelligibly in an accessible format.

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