A securities regulator late this week fined two Wall Street firms with each then settling the matter which involved separate allegations that the companies misrepresented and improperly supervised certain subprime RMBS delinquency figures.
Credit Suisse Securities (USA) LLC and Merrill Lynch neither admitted nor denied the charges, but agreed to the release of related investigations' findings. The two firms respectively face $4.5 million and $3 million in fines.
The Financial Industry Regulatory Authority found that in 2006 Credit Suisse was aware of errors in the historical delinquency rates for 21 subprime residential mortgage-backed securities it underwrote and sold, but failed to correct them or have proper controls in place.
The securities regulator said that for six of the securitizations the errors were big enough to affect investors’ assessment of four subsequent RMBS that referenced the original securitizations.
Separately, FINRA found Merrill negligently misrepresented the historical delinquency rates for 61 subprime RMBS it underwrote and sold between January 2006 and June 2007. After learning of the errors in June 2007, Merrill promptly posted corrected data on its website, according to the securities regulator. But FINRA said it felt Merrill failed to establish a reasonable system to supervise and review the data.
In this case, the securities regulator said it found that the errors were significant enough to affect investors’ assessment of five subsequent RMBS investments that referenced the original securitizations.
Bank of America acquired Merrill in 2009 but the Wall Street firm still operates under its own broker-dealer registration.
