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Wall Street titans fear further action from SEC

David Hellier
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WALL Street’s banking giants fear that the Securities and Exchange Commission (SEC), fresh from hitting Goldman Sachs with a civil fraud charge, may soon move on to other targets.

Bank of America Merrill Lynch, Citi and UBS are the three leading players when it comes to issuance of the controversial collateralised debt obligations (CDOs), according to research from Nomura. But mortgage securities deals also went sour during this period at Deutsche Bank and many other banks.

Yesterday, Goldman’s rivals were doing their best to play down any sign of panic. “We’ve no indication that the SEC is about to launch an investigation on any of our products,” said a spokesman for one of the big banks. Another said: “There’s been a huge amount of speculation about whether further probes will follow but we’re not commenting.”

In a court filing last Friday, made shortly after the SEC announcement of its case against Goldman, the Dutch bank Rabobank compares a civil case it has lodged against Merrill Lynch to the Goldman case. Rabobank is claiming it lost $45m (£29.4m) through a CDO investment known as Norma sponsored by Merrill Lynch.

“The SEC charges bear directly on the sufficiency of Rabobank’s complaint,” writes Rabobank lawyer Jon Pickhardt, “because Rabobank has alleged that Merrill Lynch engaged in precisely the same type of fraudulent conduct in the structuring and marketing of Norma through having failed to disclose that Norma’s collateral pool had been selected to benefit short positions taken by Magnetar Capital, the equity investor in Norma.”

Merrill Lynch says that Rabobank’s claims are without foundation and are dissimilar to the allegations against Goldman.