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Update in Case Regarding Alleged Price-Rigging of GSE Bonds

A report by Bloomberg states that lawyers accusing several Wall Street banks of rigging the price of Fannie Mae and Freddie Mac bonds have a "cooperator" who is providing “smoking gun evidence.”

Among the reported evidence is electronic chats, according to a new court filing.

The identity of the cooperating party has not been revealed. Bloomberg's report states that one institution allegedly appears in all the chats: Deutsche Bank AG.

Bloomberg states the lawsuit includes chats between traders at Deutsche Bank and others at Goldman Sachs Group Inc., Morgan Stanley, and BNP Paribas SA. The lawsuit accuses more than a dozen financial institution of ripping off pension funds from 2009 to 2016.

Bloomberg reported last June that the Justice Department had opened a criminal investigation into the possibility traders manipulated prices in the market for bonds issued by the GSEs.

The lawsuit published pieces of four chats that the pension funds claim are examples of improper coordination among the banks. While multiple banks are involved in each chat, a Deutsche Bank trader is involved in all four.

One conversation from February 2012 allegedly included traders at Deutsche Bank, BNP, and Morgan Stanley discussing trying to sell $390 million in Federal Home Loan Bank bonds that they won at a joint auction four days prior.

U.S. District Judge Jed Rakoff set a trial date of May 4, 2020, but will first decide whether the case will have a class -action status.

Beginning on June 3, 2019, the GSEs will begin issuing a new common security known as the Uniform Mortgage-Backed Security (UMBS). The Federal Housing Finance Agency announced the change last year. The UMBS will be issued through the Enterprises' joint venture, Common Securitization Solutions (CSS), using the Common Securitization Platform (CSP).

"The transition to the new, common security requires planning, investment, and preparation by a wide variety of market participants," said former FHFA Director Melvin L. Watt in 2018. "We have now set the specific date that the Enterprises will start issuing the UMBS and I urge the industry to get ready now to ensure smooth, successful implementation."

According to the FHFA statement at the time, the initial UMBS announcement was timed to coincide with the GSEs and CSS having hit three milestones: “completion of key application development for issuance of the UMBS on the CSP, completion of system-to-system testing, and initiation of end-to-end (pre-parallel) testing.”

About Author: Mike Albanese

Mike Albanese is a reporter for DS News and MReport. He is a University of Alabama graduate with a degree in journalism and a minor in communications. He has worked for publications—both print and online—covering numerous beats. A Connecticut native, Albanese currently resides in Lewisville.

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