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Cuomo Will Let Ethics Panel Review Bear Stearns Ties

New York Attorney General Andrew Cuomo told CNBC that he would let a state ethics panel review his connections with a prominent Bear Stearnsboard member if his office decides to launch a formal investigation into the firm's involvement in the subprime meltdown.

Cuomo said that prominent Bear Stearns board member Vincent Tese contributed to his successful bid for attorney general in 2006, and if "something comes of what we are doing, if there's an investigation, we will have the ethics panel review" Cuomo's involvement in the matter.

Cuomo's office recently subpoenaed several large Wall Street firms--including Bear, Merrill Lynch, and Deutsche Bank--over how they packaged bonds backed by risky mortgages such as subprime loans. Meanwhile, Tese, as head of the audit committee of the Bear Stearns board, is leading the investigation into the circumstances surrounding the implosion of two of the firm's subprime hedge funds last summer. A Bear Stearns spokesman had no comment.

Tese's ties to Cuomo and his father, the former New York State Governor Mario Cuomo, are strong. Tese is a family friend of the Cuomo's and worked for the governor as his economic development czar.

In the CNBC interview, Cuomo also responded to growing criticism that he helped foster the subprime-loan meltdown when, as secretary of the department of Housing and Urban Development in the mid 1990s, he pushed for more affordable housing to low income people that resulted in the creation of the now depressed subprime bond market.

That market allowed the banks to expand credit to low-income people because Wall Street firms took those loans off the banks' balance sheets and packaged them into securities that were sold to investors. But the securities have fallen dramatically in value as many subprime borrowers defaulted on their loans, a leading contributor to the credit crisis that has engulfed Wall Street and threatens the banking system and the US economy.

"I deliberately stayed away from subprime," Cuomo said, adding his investigation is "about appraisal fraud," focusing primarily on the firm First American Corp., which has called on the courts to dismiss Cuomo's lawsuit.

Cuomo said any subpoenas to Wall Street firms are an outgrowth of that investigation. "Our inquiries involve loans dealing with a company called First American," he added.

Cuomo sued First American and one of its property appraisal units last month for allegedly colluding with Washington Mutual, one of the largest U.S. home lenders, to inflate property appraisals.

A week later, he announced the office had sent subpoenas to Fannie Mae and Freddie Mac, giant mortgage agencies sponsored by the U.S. government. The subpoenas sought information on loans these enterprises purchased from banks, including WaMu.