Christopher Garcia, chief of the Securities and Commodities Fraud Task Force in the U.S. Attorney's Office in Manhattan, told white-collar criminal-defense lawyers at a conference last March that his office would spend 2011 investigating possible fraud involving CDOs and CDSs.
"If there's crime there, we're going to find it and we're going to pursue it," Garcia said at an American Bar Association meeting in San Diego. Investigators won't be deterred by the complexity of the financial instruments, he said.
CDOs are pools of assets such as mortgage bonds packaged into new securities. Interest payments on the underlying bonds or loans are used to pay investors.
Credit default swaps pay the buyer face value if a borrower fails to meet its obligations, less the value of the defaulted debt.
Garcia said in an interview after his presentation that his office is "bringing in people with expertise in these areas."
"It's an enforcement priority," he said.
U.S. prosecutors in Washington in 2010 decided not to bring charges against former American International Group Inc. executive Joseph Cassano after a probe into whether executives in the firm's Financial Products Division misrepresented the value of a portfolio of "super senior" credit-default swaps, which insured bond losses tied to the U.S. housing market.