The U.S. Securities and Exchange Commission (SEC), which has been roundly chided for not uncovering several high-profile investment fraud schemes, is getting more aggressive. It now has launched a series of investigations focusing on subprime lenders, hedge funds, and home builders.
“The SEC is fully committed to addressing the [economic] crisis,” Elisse Walter, a SEC commissioner, told the House Financial Services committee last Friday. “To finding out what went wrong, punishing any wrongdoers, and returning as much money as possible to injured investors.”
Through a spokesman, Walter declined to comment beyond her testimony, so it is unclear whether the SEC is targeting specific builders. And several large production builders that BUILDER contacted said that their companies hadn’t received any notices from the SEC requesting documentation, or said company policy prevented them from commenting one way or the other.
In her testimony, Walter stated that the Commission is looking into possible fraud committed by subprime lenders, investment banks, securitizers, brokers, credit ratings agencies, and home builders. For example, she told lawmakers that the SEC’s investigation of brokers might entail the suitability of securities for the customer and whether the broker received any undisclosed compensation.
It appears that builders are being targeted for investigation partly because they (or their subsidiaries) are among the companies that, according to Walter, “provided retail mortgages to consumers.” However, Walter also noted that any investigation of builders might also entail “possible financial fraud, such as improper quarterly earnings management or improper recognition of revenue on model home sales and leasebacks, as well as improper related-party transactions.”
John Caulfield is senior editor at BUILDER magazine.