Wells Fargo and Goldman Sachs Might Face Charges of over Mortgage Bonds (WFC, GS)

Wells Fargo (NYSE: WFC) and Goldman Sachs (NYSE: GS) said in regulatory filings on Tuesday that they might face federal enforcement action, concerning to mortgage backed securities which eventually resulted into the financial crisis.

The disclosures just reflect that government officials are taking the matter very seriously. The Government argues that banks packaged home loans into bonds during the housing boom. The underlying mortgages later soured, resulting billions in losses for investors.

Both Wells Fargo and Goldman Sachs said on Tuesday that they received so-called “Wells notices” from the U.S. Securities and Exchange Commission. A Wells notice shows that SEC staff plan to advocate that the agency take legal action and gives a recipient a chance to mount a defense.

Goldman received its Wells notice on February 24. The notice was concerning the $1.3 billion subprime mortgage-backed securities deal in late 2006 which the bank underwrote.  Meanwhile, Goldman commented that it will be making a submission to the SEC related to the case and communicating with SEC staff to address their concerns.

Earlier, the bank also received notices from governmental, regulatory bodies and self-regulatory entities. The bank was charged that it had entered certain transactions with MF Global Holdings Ltd prior to the brokerage firm’s bankruptcy filing. The bank said it is cooperating with all such inquiries.

According to Reuters, the bank had purchased $1.3 billion worth of commercial paper from MF Global days before it filed its bankruptcy on October 31^st.

Meanwhile, Wells Fargo said its Wells notice is related to its disclosures in offering documents for mortgage-backed securities. The bank said it is cooperating with the authorities and providing information requested by various regulatory agencies in connection with their investigations.

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Post Written By: Ed Liston Ed Liston is a senior contributing editor at TheStockMarketWatch.com. An active market watcher and investor, Ed guides an independent team of experienced analysts and writes for multiple stock trader publications. He is widely quoted in various financial publications on the Internet. When Ed is not writing about stocks, investing in stocks, talking about stocks, or otherwise doing something stock related, he likes to go sailing and fishing in his yacht.