-
The Securities and Exchange Commission has accused Wells Fargo & Co. of failing to produce documents relating to an investigation of the bank’s mortgage-backed securities. Wells called the SEC's subpoena enforcement action "inappropriate and unwarranted."
March 23 -
JPMorgan Chase rebutted claims that it misled four failed corporate credit unions into buying $1.5 billion of risky mortgage-backed securities, and instead pointed the finger at the management of the failed corporates and National Credit Union Administration's own examiners.
October 31 -
Due diligence reports from the securitization boom could worsen the financial industry's litigation headaches — and conceivably expose firms and individuals to criminal charges.
March 11
Wells Fargo (WFC) made repeated promises in the past six months to turn over documents and emails to the Securities and Exchange Commission but repeatedly failed to do so, according to a complaint filed in federal court on Friday.
In response, the SEC
The SEC is investigating whether Wells made any "material misrepresentations or omissions" in the sale of nearly $60 billion of residential mortgage-backed securities to investors. Evidence that the bank knew the collateral in mortgage securities did not meet underwriting guidelines would undermine a typical defense in such situations, that the mortgages soured for reasons beyond the sellers' control.
Wells Fargo has called the SEC's actions "inappropriate and unwarranted." In a March 14 email provided to American Banker, a lawyer for Wells told an SEC official that the bank "has produced an extensive amount of documents and information responsive to the numerous requests that have been made."
Wells received notice on Feb. 24 that the SEC had planned to file an enforcement action against the bank and two employees, according to the email.
"Given that notice, we assumed that the investigation was over and we had moved to a different phase," Wells Fargo outside counsel Michael J. Missal, of K & L Gates, wrote in the email to SEC lawyer William Salzmann.
Ancel Martinez, a Wells spokesman, reiterated that the bank has "extensively cooperated in the commission's investigation and believed it had an understanding with the SEC staff with regard to the outstanding document requests."
Wells responded to the first subpoena from the SEC on Sept. 30 by turning over a few of its origination guidelines from an electronic repository, according to the SEC's complaint. By March, the SEC says it was still requesting that Wells identify which specific underwriting guidelines applied to the offerings.
In the March 14 email, Missal said Wells "should be able to produce shortly" the set of underwriting guidelines.
But in its 16-page filing on Friday, the SEC claimed that Wells made it habit of promising — and then failing — to provide documents it requested.
In January and early February, Wells said it would produce the underwriting guidelines and other documents by no later than March 7, but it failed to do so, according to the SEC. In mid-February, Wells told the SEC it would produce documents "later this week" and promised to turn over all documents "next week" — but it never did, according to the complaint filed Friday.
"In each case the return date for the subpoena is now long since passed and yet Wells Fargo admittedly has failed to produce all responsive documents," the SEC said in its complaint.
The SEC says it has also asked for drafts of the prospectus supplement that addressed how the loans were underwritten. It also requested all emails sent or received by certain employees related to residential mortgage-backed securities, and all communications with investors on underwriting standards and the due diligence process.
In January, it subpoenaed the preliminary "loan tape," which contains data on each mortgage loan prior to the completion of the underwriter's due diligence. In February, the commission asked for all offerings distributed by Wells at an annual industry forum on securitization and documents related to salaries, bonuses and compensation for two Wells employees involved in the offerings.
The SEC appears to be focused on due diligence reports, which allow a securitizer to kick out loans that do not meet underwriting standards.
The SEC said that Wells had removed some loans from mortgage pools after either the underwriter or a third-party firm conducted due diligence on a sample of loans. However, the SEC said in the filing, "it does not appear that Wells Fargo took any steps to address similar deficiencies in the remainder of the loans in the pool being securitized and sold to investors."
Most issuers conduct due diligence on a sample of 2% to 5% of loans in a pool. There has been widespread concern that even when issuers pluck loans that did not meet underwriting guidelines out of the sample pool, they do not then review a bigger sample to determine if those loans' defects were widespread.
