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.