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SEC is Investigating Residential Capital

startribune.comAugust 29, 2012

By Edvard Pettersson and Steven Church

Residential Capital, the bankrupt, Minnesota-based mortgage unit of Ally Financial Inc., is being investigated by the U.S. Securities and Exchange Commission for possible fraud.

"The commission is investigating possible fraud in the offer and sale of residential mortgage-backed securities by ResCap and certain of its subsidiaries," the SEC said in a filing Monday in federal court in Los Angeles. The agency is asking a judge to force R.R. Donnelley & Sons Co. to comply with an administrative subpoena for due diligence reports on the bonds that it prepared.

The SEC is investigating "ResCap's origination and underwriting practices used to make and approve loans in connection with offerings of residential mortgage-backed securities, the credit quality of loans underlying offerings of residential mortgage backed securities, and the creditworthiness of borrowers," according to the filing.

The investigation started Feb. 22, according to the SEC's filing.

Residential Capital, known as ResCap, is based in Bloomington and employs about 80 people there. ResCap filed bankruptcy May 14 with plans to sell most of its assets and to resolve lawsuits related to mortgage-backed securities. ResCap has proposed settling a fight over mortgage-backed securities by giving investors the right to pursue an $8.7 billion claim in bankruptcy.

Under the proposed settlement, hundreds of securitization trusts would drop legal claims related to 1.6 million mortgages originally worth $221 billion.

Ally, a Detroit-based bank that specializes in car loans, is majority-owned by the U.S. Treasury after receiving a bailout.

Susan Fitzpatrick, a spokeswoman for ResCap, declined to comment on the court filing.

Doug Fitzgerald, a spokesman for Chicago-based R.R. Donnelley, a commercial printer, said the company was subpoenaed as a service provider, not as a party to the case.


Back to August 2012 Archive

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