Facing a steady drumbeat of criticism over the lack of cases filed against those who caused the financial collapse, Securities and Exchange Commission officials insisted Wednesday that they are pursuing fraudsters.
More than half of the SEC’s biweekly priority case list of up to 90 financial fraud investigations have a criminal component, according to SEC Enforcement Division deputy director Lorin Reisner.
Coordination and information-sharing between the SEC and the Department of Justice, as well as the president’s Financial Fraud Enforcement Task Force, and state counterparts in Virginia and Connecticut, have enabled the agency’s Enforcement Division to become more effective at resolving investigations into mortgage frauds, Ponzi schemes, securities scams and other financial crimes, Reisner said. The commission generally brings 650 cases a year, and it went up to 680 in 2010, Reisner said. The agency currently has 2,000 active cases, he said.
“”The coordination platform provided by the task force strengthens the cases we bring and leads to more effective resolutions,” Reisner said. For substantive information on fraud-related cases, he offered the agency’s website.
Yet relentless public ire over big banks and executives–think former Countrywide Financial Group’s chief executive Angelo Mozilo and AIG Financial Products Inc.’s former chief Joseph Cassano–being let off the hook for their roles in the 2008 financial collapse tends to cloud what inroads are being made prosecuting smaller fry for crimes that caused foreclosures and decimated investment portfolios. Reisner and Patrick Stokes, deputy and co-chief of the Fraud Section’s securities unit, discussed current efforts.
They discussed financial fraud enforcement trends at an American Bar Association event at the Metropolitan Club in Washington yesterday, a venue where men must wear jackets and ties to get in the door. The panel was moderated by Washington-based securities lawyers Thomas Gorman, of Dorsey & Whitney LLP, and Frank Razzano, of Pepper Hamilton LLP.
While most of the criminal financial fraud prosecutions are smaller cases brought by U.S. Attorney’s offices, Stokes said it would be wrong to think his unit is shying away from big bank prosecutions. It depends on finding the right evidence, he said. While any big numbers boost in prosecutions related to the financial collapse–corporate, securities and bank frauds–has yet to materialize, DOJ claims its mortgage-fraud prosecutions, for example, have more than doubled in fiscal 2010 from the year before.
Fraud Section figures show the number of financial collapse-related cases fell last fiscal year by 39 percent from 2003, the first year after Fraud Section chief Joshua Hochberg formed the Enron Task Force and brought in litigation deputy Paul Pelletier to revamp the section’s lawyering.
Stokes said bringing civil fraud cases against big banks may be more realistic in some cases; both Stokes and Reisner said it all hinges on the facts and the evidence. Either way, they said the charging process and penalty phase must be used effectively to serve as a deterrent. Last month, federal prosecutors in the Southern District of New York filed a $1 billion civil fraud suit against Deutsche Bank AG for allegedly lying about mortgage risks when trying to qualify for government insurance.
Citing the SEC’s new whistleblower program, a third member of the panel, Stephen Gannon, deputy general counsel at Capital One, said companies and banks must protect themselves against workers who report wrongdoing first to the SEC rather than internally. He urged companies and banks to put a premium on establishing contingency plans that can be implemented at a moment’s notice as soon as they hear that a whistleblower has gone to the SEC. He said the idea would be to get ahead of the government’s probe and proactively be on top of the problem.
Ideally, though, Gannon said, companies should make their own internal whistleblower programs more attractive than the SEC’s so that their workers come to them first.