firedoglake.com
| Apr 13, 2012
By:
David Dayen
The
Justice Department has responded to allegations that they have not staffed the
RMBS working group, the division within their financial fraud task force
co-chaired by Eric Schneiderman which is supposed to investigate and prosecute
banks for securitization fraud. Adora Andy, a DoJ spokesperson, told me in a
statement:
The
new Residential Mortgage-Backed Securities Working Group is marshaling parallel
efforts on the state and federal levels to collaborate on current and future
investigations, pooling resources and streamlining processes to investigate
those responsible for misconduct contributing to the financial crisis in a
comprehensive way. Significant efforts continue to move forward and if they
uncover evidence of fraud or other illegal conduct, we will pursue such conduct
aggressively.
Moreover,
a DoJ official requesting anonymity claims that “at least 50 staff” are already
working on the task force, though it was unclear whether they were working on
the task force itself or the effort to staff it. In addition, working group
co-chairs meet officially every week and talk almost every day, the DoJ
official said. DoJ has requested a $55 million bump in their budget
specifically for financial fraud investigations. As for an “executive director”
or a staff manager outside of the co-chairs, DoJ posted a listing for a
full-time coordinator for the working group last month (a month after the
announcement of the task force), and candidates for the position are under
consideration (so nobody has been hired).
Eric
Schneiderman’s office never responded to a request for comment.
There
are basically two parts of the DoJ’s argument. One is that not enough documents
have yet been received and staffing needs required to justify a full staff at
this point. The other is that additional personnel above the 55 from DoJ will
come from other federal agencies and the state AG offices.
I
asked Becky Bond of CREDO to comment on this justification from DoJ, and here’s
what she had to say:
Enron,
which was only one company, was investigated by 100 FBI agents. The Savings and
Loan scandal in the 1980s: 1,000 FBI agents. It’s been three months since
President Obama announced a task force to investigate the biggest financial
fraud in American history, and the DOJ has only deployed 50 staff. We don’t
even know if this means there are 50 investigators or even 50 full time
employees on the job. The Justice Department needs to tell the American people
how many investigators are working for the task force, and why there are so few
resources assigned compared to frauds of much less magnitude.
The
American people deserve better. In many states, statutes of limitation are
starting to expire. If the Obama administration is truly serious about holding Wall
Street accountable, we need 20 times the number of investigators pursuing
justice for America’s underwater homeowners and victims of foreclosure fraud.
Not a single banker has gone to jail for crimes committed that led to the
financial crisis. We need to watch the progression of this task force carefully
to see whether this is a real attempt by President Obama to hold Wall Street
accountable or simply another empty gesture that does far more to protect than
to prosecute Wall Street bankers.
DoJ
elaborated to Reuters, in particular about the statute they may be using in the
investigation:
An
Obama administration task force established to investigate misconduct that
fueled the financial crisis is turning to a little-used statute that may make
such cases easier to bring, according to people familiar with the matter.
The
federal statute, FIRREA [Financial Institutions Reform, Recovery, and
Enforcement Act], was passed in the wake of the savings-and-loan scandals in
the 1980s. It requires a lower burden of proof than criminal charges, has a
longer statute of limitations than other financial laws and potentially could
bring big fines.
But
it has appeared in only a few dozen cases since it was enacted in 1989.
The
task force, which is in the Justice Department, used FIRREA earlier this year
when it issued more than a dozen civil subpoenas to top financial institutions,
including Citigroup, the people familiar with the matter said.
The
longer statute of limitations is key, as some of the securities laws with
five-year statutes of limitations would be hitting their deadline fairly soon.
The last securitization deals came around 2007. But because FIRREA has been
used so sparingly over the years, it’s less predictable how the legal system
will react to it.
What’s
more, Abigail Field points out that the foreclosure fraud settlement already
employed FIRREA:
The
$25 billion mortgage servicing settlement approved last week, which resolved
federal and state allegations that five top U.S. banks engaged in misconduct
when servicing home loans and processing foreclosures, also included violations
of FIRREA.
That
doesn’t say that the threat of FIRREA was used to increase penalties. It says
that violations of FIRREA were folded into the settlement itself. So
investigators have a narrower menu of violations now.
As
Field also points out, we could have seen FIRREA subpoenas at any point during
this crisis. Only now, in April of an election year, do we hear about this big
gun being pulled out. She writes, “Next time the task force (or the Justice
Department) feels the need to defend its law enforcement seriousness publicly,
I hope it can be more convincing.”
UPDATE: DoJ
confirms that current staff (the 50 staffers) are working on the RMBS working
group efforts directly. In addition, they pointed me to an article from March
suggesting that they envision “substantially more personnel being devoted to
[the Working Group] than just those 55.” We will all have to wait and see.
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