SEC Investigates Possible Fraud in ResCap’s Offer/Sale of Mortgage-Backed
The SEC is investigating Residential Capital (“ResCap”), Ally
Financial Inc.’s troubled mortgage business, for potential instances
of mortgage fraud, according to recent court documents. Though the SEC’s
investigation into the company began on Feb. 22, it wasn’t disclosed
until this week, when the SEC filed new documents in court in an effort
to obtain due diligence reports from R.R. Donnelley & Sons, a firm
involved in the case.
“The information in Donnelley’s possession is relevant in determining
whether ResCap made material
misrepresentations or omissions about the mortgage loan pools that backed the securitizations
under investigation,” the S.E.C. wrote in its filing.
According to court documents, the SEC is looking into ResCap’s offer
and sale of the mortgage-backed securities for possible instances of fraud.
reported by Reuters, Ally Financial admitted that it had received subpoenas related to the
company’s mortgage practices in 2011 from both the SEC and the Justice
Department. Materials given to the investors in the mortgage-backed securities
were among the documents requested by the SEC.
Residential Capital filed for Chapter 11 bankruptcy in May after the company
found itself unable to make payments on the debts related to its bad mortgage
loans. Among the other claims listed against the company’s assets were
at least 32 claims related to active or potential securities arbitration, according to a May 14 article on Bloomberg.com. It looks like the May
bankruptcy filing might indicate an effort on the part of ResCap to shed
legal liability for the mortgage-related claims.