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Residential capital faces SEC investigation for possible fraud

Residential capital faces SEC investigation for possible fraud

  • Bloomberg
  • Published: 13:17 August 29, 2012
  • Gulf News

Los Angeles: Residential Capital LLC, the bankrupt mortgage unit of Ally Financial, is being investigated by the US Securities and Exchange Commission for possible fraud.

“The commission is investigating possible fraud in the offer and sale of residential mortgage-backed securities by ResCap and certain of its subsidiaries,” the SEC said in an August 27 filing in federal court in Los Angeles. The agency is asking a judge to force R.R. Donnelley & Sons Co. to comply with an administrative subpoena for due diligence reports on the bonds that it prepared.

The SEC is investigating “ResCap’s origination and underwriting practices used to make and approve loans in connection with offerings of residential mortgage-backed securities, the credit quality of loans underlying offerings of residential mortgage backed securities, and the creditworthiness of borrowers,” according to the filing.

The investigation started February 22, according to the SEC’s filing.

Residential Capital, known as ResCap, filed bankruptcy May 14 with plans to sell most of its assets and to resolve lawsuits related to mortgage-backed securities. ResCap has proposed settling a fight over mortgage-backed securities by giving investors the right to pursue an $8.7 billion (Dh31.9 billion) claim in bankruptcy.

Legal claims

Under the proposed settlement, hundreds of securitisation trusts would drop legal claims related to 1.6 million mortgages originally worth $221 billion.

Ally, a Detroit-based bank that specializes in car loans, is majority-owned by the US Treasury after receiving a bailout.

Susan Fitzpatrick, a spokeswoman for ResCap, declined to comment on the court filing.

Doug Fitzgerald, a spokesman for Chicago-based R.R. Donnelley, a commercial printer, said the company was subpoenaed as a service provider, not as a party to the case.

“We promptly complied with the subpoena, but redacted the names of individual borrowers, in accord with our understanding of the Right To Financial Privacy Act,” he said. “If a judicial ruling confirms that we will be in compliance by providing documents with the names not redacted, we will promptly provide the requested additional information.”

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