The Department of Justice has announced the creation of an interagency task force designed to investigate and prosecute financial crimes of the type believed to play a role in causing the current financial crisis.

The Financial Fraud Enforcement Task Force, announced November 17, 2009 and created by executive order, will be comprised of senior-level officials from more than 20 departments, agencies and offices, and will be chaired by Attorney General Eric Holder. It is designed to have greater breadth than the Corporate Fraud Task force established by the prior Administration in 2002 in response to the Enron accounting scandal. The task force will take advantage of new anti-fraud funding and powers enacted by Congress earlier this year in the Fraud Enforcement and Recovery Act, which authorized $245 million annually in 2010 and 2011 to hire hundreds of prosecutors and agents to prosecute financial fraud.

Overview of Taskforce

Designed, as AG Holder noted, "to prevent another [financial] meltdown from happening," the task force will be comprised of officials from 25 federal agencies who will work with state and local law enforcement to investigate and prosecute mortgage fraud, securities fraud and misuse of economic stimulus money. In addition to the DOJ, some of the other agencies involved in the task force are the Treasury and Housing and Urban Development departments and the Securities and Exchange Commission. The SEC will create specialized units within the agency that will focus on derivatives and securities, insider trading and market manipulation, and fraud among hedge funds and investment advisers.

The crimes that will get the highest priority include:

  • Mortgage fraud – from the simplest of "flip" schemes to systematic lending fraud in the nationwide housing market;
  • Securities fraud – including traditional insider trading, Ponzi schemes and misrepresentations to investors;
  • Recovery Act and rescue fraud – insuring that monies spent to spur economic recovery "is not siphoned away by a dishonest few" and insuring the integrity of the federal procurement and grant processes;
  • Discrimination in lending and financial markets.

Aggressive, Proactive Enforcement

Financial services business and their officers and directors should take seriously AG Holder's declaration: "The Financial Fraud Enforcement Task Force will wage an aggressive, coordinated, and proactive effort to investigate and prosecute financial crimes." The creation of the task force is yet another sign that the Obama Administration is determined to strengthen oversight of the financial sector, end lapses in enforcement and, as AG Holder commented, pursue "the types of financial crime that affect us most significantly in this time of economic recovery." At the end of a year in which the federal government has been working in unprecedented concert with foreign jurisdictions to increase its vigilance in other financial areas (please see our Bank Secrecy Alert published today), it is critically important for the financial services industry to review all its practices and ensure it is in compliance with the law.

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