Wednesday, April 9, 2008
Subprime lender American Business Financial Services (ABFS) went bankrupt three years ago, and purchasers of its high-yield notes, unsophisticated investors who purchased the notes through direct mailings and newspaper ads, lost millions. Now the bankruptcy trustee is looking into the role the investment banks played in the company's overstatement of its assets on its books, and the FBI and SEC are investigating as well. All the investment banks have denied wrongdoing. After the banks stopped securitizing ABFS loans in 2003 (after an annonymous letter accusing the company of running a pyramid scheme), the company kept marketing its notes directly to the public, warning investors in the prospectus that they could lose their entire investment. WSJ, Subprime Lender's Failure Sparks Lawsuit Against Wall Street Banks.