The federal government has opened a criminal investigation into whether traders manipulated prices in the $550 billion market for corporate bonds issued by Fannie Mae and Freddie Mac, according to people familiar with the matter.
The probe, parts of which were described by four people familiar with it, shows that investigations by the Obama Justice Department into market manipulation by bank traders are continuing under President Donald Trump. The Obama administration secured billions of dollars in settlements and criminal charges tied to the rigging of currency markets and benchmark interest rates.
The latest inquiry is in its early stages and focuses on whether traders at banks coordinated with one another in order to benefit the institutions they work for, said two of the people, who asked not to be named because the investigation is confidential. Investigators are looking at potential fraud and antitrust violations, four people said. The identity of the banks under scrutiny couldn't be determined.
The Justice Department didn't respond to a request seeking comment. Spokesmen for Fannie and Freddie didn't provide an immediate comment.
The investigators are looking not into the mortgage securities issued by the two companies to finance home purchases but rather at the secondary market for Fannie's and Freddie's corporate bonds, two of the people said. Together, the mortgage-finance companies have outstanding corporate debt of about $548 billion, according to the Securities Industry and Financial Markets Association.
Prosecutors from the Justice Department's antitrust division and criminal division are working on the investigation, according to two of the people. Antitrust lawyers focus on collusion to fix prices, while the criminal division is responsible for prosecuting fraud charges.
The biggest holders of Fannie and Freddie debt include institutional investors like Vanguard Group Inc. and BlackRock Inc. as well as public entities like the U.S. Federal Reserve and states like Maryland and Florida, according to data compiled by Bloomberg.
It's unclear whether the investigation will lead to any prosecutions. The Justice Department has been examining possible manipulation of at least two other bond markets – including U.S. Treasuries – for three years and has yet to bring any charges.
The Obama-era investigations of interest-rate and foreign-exchange markets prompted guilty pleas by the world’s biggest banks, including Deutsche Bank AG, UBS Group AG, Barclays Plc, JPMorgan Chase & Co., Citigroup Inc. and Royal Bank of Scotland Group Plc. The banks in those cases agreed to self-report to U.S. authorities any potential misconduct found on their trading desks.
