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More Resources Will be Allocated to Financial Fraud Initiatives


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Expert Witness: Fulcrum Inquiry
Government resources are usually allocated based on the political sentiment of the day. Currently, white collar financial crimes associated with the recession are in favor. We summarize statistics released by the FBI and Treasury department. White collar defense lawyers face improving business conditions.
Government resources are usually allocated based on the political sentiment of the day. Those in charge of investigations understandably want to show that they are accomplishing something. Consequently, once resources are allocated to an investigative area, prosecutions invariably follow.

White collar defense lawyers face improving business conditions. This is occurring because (i) increased resources have already been allocated to white collar crimes involving areas relevant to the current recession, (ii) Congress is likely to provide even greater resources to white collar investigations, and (iii) the Obama administration is widely anticipated to demonstrate much greater activism and aggressiveness in regulatory and enforcement activities.

Under the Bush administration, after 9/11, the FBI reassigned agents from financial fraud investigations to counter-terrorism assignments. Although efforts associated with financial fraud increased under the Bush administration once the mortgage mess became apparent, the F.B.I’s white collar crime units remain down from pre-9/11 levels. Because of scare resources, the FBI was stumping for more money from receptive Senators who have already proposed legislation (see below) that would give the FBI what it wants. In describing the “Need for Increased Fraud Enforcement in the Wake of the Economic Downturn”, John Pistole, the FBI’s Deputy Director testified before the Senate Judiciary Committee Hearing as follows:

”The current financial crisis has produced one unexpected consequence: it has exposed prevalent fraud schemes that have been thriving in the global financial system. These fraud schemes are not new but they are coming to light as a result of market deterioration. For example, current market conditions have helped reveal numerous mortgage fraud, Ponzi schemes, and investment frauds, such as the Bernard Madoff alleged scam. These schemes highlight the need for law enforcement and regulatory agencies to be ever vigilant of white collar crime both in boom and bust years.”

“The FBI has experienced and continues to experience an exponential rise in mortgage fraud investigations. The number of open FBI mortgage fraud investigations has risen from 881 in FY 2006 to more than 1,600 in FY 2008. In addition, the FBI has more than 530 open corporate fraud investigations, including 38 corporate fraud and financial institution matters directly related to the current financial crisis. These corporate and financial institution failure investigations involve financial statement manipulation, accounting fraud and insider trading. The increasing mortgage, corporate fraud, and financial institution failure case inventory is straining the FBI’s limited White Collar Crime resources.”

Similarly, the Treasury Department reported that more than 60,000 cases alleging mortgage fraud were filed in 2008, 10 times as many as were reported in 2002.

To support continuing this increased focus on financial fraud, two laws are currently being considered by the Senate:

1. Senators Patrick Leahy and Chuck Grassley introduced the Fraud Enforcement and Recovery Act. The bill would (i) strengthen federal criminal laws, including criminal fraud, securities law, and money laundering laws, (ii) increase the funding available to the federal law enforcement agencies to combat mortgage fraud and predatory lending, and (iii) revise the False Claims Act to ensure that the government can recover taxpayer dollars lost to fraud and abuse. The bill is backed by the Justice Department

2. Senators Charles Schumer and Richard C. Shelby introduced the Supplemental Anti-Fraud Enforcement ("SAFE") Markets Act which is "designed to increase enforcement and detection of white-collar crime" by "adding $110 million to the budgets of the Justice Department, the Securities and Exchange Commission and the F.B.I." The F.B.I. would get the bulk of the funds, $80 million, to hire 500 new agents in its white-collar crime division. The S.E.C. would receive $20 million to hire 100 new enforcement officials. The Justice Department would get $10 million for 50 new assistant U.S. attorneys.

ABOUT THE AUTHOR: David Nolte
Mr. Nolte has 30 years experience in financial and economic consulting. He has served as an expert witness in over 100 trials. He has also regularly served as an arbitrator. Mr. Nolte has achieved the following credentials: CPA, MBA, CMA and ASA.

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While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer.
For specific technical or legal advice on the information provided and related topics, please contact the author.

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