The FBI is probing whether Countrywide Financial (NYSE: CFC) committed securities hoax by making false statements about the mortgage bank’s deteriorating financial position.

The Wall Street Journal (subscription required) reports that a “potential issue facing the company is whether it has been candid in its accounting for losses. public familiar with the matter said that Countrywide’s losses may be several times greater than it has disclosed.”

Aside from the potential civil and criminal issues at stake, the review could kill the takeover of Countrywide by Bank of America (NYSE: BAC). It is not clear whether the mortgage company can manufacture it as an independent operation whether the big bank withdraws it offer. whether auditors and the government determine

that CFC losses are much greater than represented, it might drive the mortgage firm into insolvency.

The Bank of America deal is probably the only way that Countrywide shareholders can get any money for their shares. The company’s stock has dropped from a 52-week high of $42.24 to just above $5, which is not much above its 52-week low.

The news reports of the FBI probe is likely to push shares lower. whether new, meaningful losses have to be reported, the price of CFC’s stock may go to zero.

Douglas A. McIntyre is an editor at 247wallst.com.

Original post by Douglas McIntyre

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