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Wall Street probe widens

New York - The battery of allegations against Wall Street banks extended dramatically on Thursday as some of the world's largest financial firms confirmed they faced criminal investigation.

At least nine major banks were said to be under criminal and civil probes over the sale of mortgage-backed products that have been blamed for sparking the global economic crisis.

What began as an investigation into Goldman Sachs' trading practices now appears to have become a near sector-wide investigation that is striking at the heart of Wall Street's credibility.

In two separate probes, the Securities and Exchange Commission and New York's Attorney General are said to be investigating whether banks misled investors by selling securities they bet against and also deceived ratings agencies about the products' value.

The Wall Street Journal on Thursday reported that Goldman Sachs, JP Morgan, Citigroup, Deutsche Bank and UBS are all the subject of criminal investigation for selling mortgage related deals while betting against them.

Meanwhile the New York Times reported that the government's top local prosecutor, Andrew Cuomo, was probing whether eight banks misled ratings agencies to inflate the grades of certain mortgage securities.

Standard & Poor's, Fitch Ratings and Moody's Investors Service were said to have rated the mortgage deals. The agencies have taken flack for overstating the quality of mortgage securities that later lost value in the wake of the housing collapse.

The Times, citing unidentified individuals with knowledge of the investigation, said Cuomo was also looking into a practice of bank mortgage desks hiring rating agencies employees to help create mortgage deals that secured better ratings than they were due.

Goldman Sachs, Morgan Stanley, UBS, Citigroup, Credit Suisse, Deutsche Bank, Credit Agricole and Merrill Lynch - which is owned by Bank of America - were all cited as targets by the paper.

On Thursday Bank of America, Citigroup and Deutsche Bank and Credit Agricole all said they were cooperating with investigators.

"We believe that the bank has acted appropriately, and we are cooperating with the authorities with the intention of corroborating our position," a Deutsche Bank official said.

Citigroup confirmed it had received "formal and informal inquiries concerning Citigroup's subprime mortgage-related conduct and business activities."

The investigations come as US lawmakers discuss wide-ranging financial reform that could transform the way Wall Street does business.

Lawmakers are urging prosecutors to be more aggressive in their investigation of the financial crisis, with only a single criminal case stemming from the meltdown so far - brought against two Bear Stearns traders.

  - AFP

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