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December 3, 2013

No Penalties Planned in Swaps Probe

A four-year-old U.S. Justice Department civil probe into allegations that large banks and others conspired to thwart competition in the $24.3 trillion market for credit-default swaps is winding down and penalties aren’t planned, said people familiar with the matter.

Credit-default swaps are insurance-like contracts used by traders and investors to bet on the creditworthiness of companies and countries. The instruments were behind the September 2008 taxpayer rescue of American International Group Inc., which faced a liquidity crisis after the housing bust spurred hefty cash demands on swaps tied to souring mortgage-related investments.

The market was targeted in the 2010 Dodd-Frank regulatory overhaul, as regulators and legislators sought to make trading more transparent and prevent another crisis. The Justice Department antitrust probe stemmed from allegations that the large banks that act as dealers in the market, matching buyers and sellers using prices that aren’t widely published, colluded to prevent exchanges and other outsiders from entering the business.

The latest developments in the Justice Department’s probe underscore the difficulties U.S. authorities have had in pursuing financial-crisis-era cases.”


Read full Wall Street Journal article here

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