Credit Suisse Securities and Merrill Lynch have been fined $4.5 million and $3 million, respectively, for misrepresenting the risks associated with certain residential sub-prime mortgage securitizations (RMBS) that they offered to investors[1]. The fines were assessed by the Financial Industry Regulatory Authority (FINRA). The lenders failed to provide historical performance information for past performance of similar loans in order to help investors make informed decisions about how future returns will potentially be impacted by borrowers’ failure to make their loan payments. Additionally, they did not always disclose how risks were calculated.

FINRA reported that Credit Suisse did not inform clients about 21 misrepresentations on the sub-prime RMBS, and “failed to monitor and supervise the reported of historical delinquency rates”[2]. This, explained Brad Bennett, FINRA enforcement chief, “deprived investors of information essential to assessing the profitability of mortgage-backed investments.” Credit Suisse failed to correct the errors once they were identified. Merrill Lynch misrepresented 61 sub-prime RMBS, but corrected errors on its website about a year later.

Since that time, Bank of America acquired Merrill Lynch and has dealt with the issue, according to BofA spokesman Bill Halldin. “We are pleased to resolve this matter, which pre-dated Bank of America’s acquisition of Merrill Lynch,” he said. Credit Suisse representatives declined to comment.

Do you think that enough has been done to rectify this problem?

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