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The probe into mortgage-related faulty practices by major global banks continues. The Federal regulators now have the likes of Barclays plc (BCS - Snapshot Report), Citigroup Inc. (C - Analyst Report), Deutsche Bank AG (DB - Analyst Report), Goldman Sachs Group, Inc. (GS - Analyst Report), JPMorgan Chase & Co. (JPM - Analyst Report), Morgan Stanley (MS - Analyst Report), UBS AG (UBS - Analyst Report) and The Royal Bank of Scotland Group plc (RBS - Snapshot Report) under scrutiny. The legal investigators are now delving into the deliberate misrepresentations by these big shots related to risky assets post financial crisis.

The Securities and Exchange Commission (SEC) and the special inspector general for the Troubled Asset Relief Program (SIGTARP) are conducting the investigation into the banks. Incorporated in 2008, SIGTARP was established to prevent fraud linked to the Troubled Asset Relief Program (TARP). SIGTARP is drawn in because the banks under investigation are believed to have sold residential mortgage-backed securities to firms, which were rescued by the bailout money during the financial crisis.

The Charges

Regulatory authorities are investigating the sale of misrepresented residential mortgage-backed securities by these banking biggies. The investigation pertains to the risky assets these banks sold to hedge funds and investment companies, after the financial crisis, between 2009 and 2011.

Investors in mortgage-backed securities primarily depend on traders’ information on the prices paid and commissions charged. Any misinterpretation by a trader can influence the decision to buy or sell these securities.

The probe generally focuses around whether traders, taking advantage of macroeconomic uncertainty, bought or sold residential mortgage-backed securities at artificial prices.

 Big Blow to Banks

The big global banks are already enduring the softness in the broader economy and fundamental pressure on the banking sector. Plus, they are reeling under penalties and fines from litigations.

The latest investigation is of course a big blow to these banks. But with regulators coming down hard upon the suspected wrongdoers, investors should be well placed for compensation.

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