Whether the attorney general is right or not, his actions once again highlight why everyone involved in controlling and operating a financial information vendor like the ABS data warehouse must be free of conflicts of interest. If there are conflicts of interest present, market participants will not trust the data.
Mr. Schneiderman’s contention that Bank of New York breached its duties to investors is significant because a trustee that agrees to oversee loan pools like those issued by Countrywide must abide by the rules governing the securities. Such rules require that lenders deliver to the trust complete and original mortgage documents for each loan in a pool, for example, and require that the trustee notify investors when such loan documents are missing.
Bank of New York led investors in the Countrywide pools to believe that the lender had in fact delivered complete and adequate mortgage files for each loan as was required, the lawsuit said. The bank also misled investors by confirming that loan files relating to hundreds of thousands of mortgages were complete.
But the bank failed in these duties, the attorney general’s complaint said. After conducting a review of court records in the Bronx and Westchester County, Mr. Schneiderman’s investigators have determined that Bank of New York did not ensure that notes underlying properties were delivered properly to some trusts, according to the lawsuit. If loan documents were not delivered as required to the trustee, investors could recover the money they invested in the mortgages.
“Investors in the trusts were misled by Bank of New York Mellon into believing that Bank of New York Mellon would review the loan files for the mortgages securing their investment, and that any deficiencies would be cured,” the lawsuit said.