FBI, SEC, Federal Reserve 'Failed to Connect the Dots' to Wall Street

Mortgage Lending Fraud

Evidence of widespread fraud also emerged during a series of civil law suits brought against mortgage brokers affiliated with Lehman Brothers, the New York investment banking firm that was forced to declare bankruptcy.

Lawyers involved in the cases say despite damning jury verdicts, there was no follow up interest from the FBI or the federal prosecutors in pursuing criminal cases, as often results from large civil suits.

The FBI has now announced it will begin criminal investigations involving allegations of fraud involving Lehman Brothers and other major Wall Street financial institutions.

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"The verdict should have been the canary in the coal mine," said Don Barrett, a lawyer who won a class action lawsuit in 2003 brought against Lehman Brothers and a now-defunct mortgage broker, First Alliance.

Barrett says not only did the FBI ignore the findings in the case, but so too did Lehman Brothers which continued to do business with suspect mortgage brokers, repackaging the bad loans and selling them as high-interest paying investments to banks around the world.

"They felt there was nobody to regulate them, they could get away with anything," said Barrett. "As it turns out, they were correct."

The former CEO and chairman of Lehman Brothers, Richard Fuld, is scheduled to be one of the first witnesses this morning before a Congressional investigating committee, chaired by Rep. Henry Waxman (D-CA).

Fuld bears directly responsibility, according to Barrett, the class action lawyer.

"Top management knew precisely, exactly what it was doing," he said of Fuld.

Fuld who made an estimated $466 million in salary during Lehman's heyday, not counting stock options, declined, through a spokesperson, to comment. The spokesperson said Fuld subsequently lost more than $800 million in the value of his Lehman Brothers stock when the firm declared bankruptcy.

Connecticut Attorney General Blumenthal, without naming Lehman Brothers directly, says there was more than enough evidence for a criminal investigation into Wall Street's connections to shady brokers who wrote tens of billions of dollars worth of mortgages.