Administration Creates Financial Fraud Enforcement Task Force, Seeking Nationwide Coordination of Law Enforcement Efforts
Matt T. Morley, Richard A. Kirby, and Andrew Edwin Porter
The Obama Administration has recently announced the formation of a task force designed to coordinate federal, state and local efforts to investigate and prosecute fraud and other financial misconduct. The Financial Fraud Enforcement Task Force (FFETF) expands and supplants an earlier task force created to combat corporate fraud in the wake of the Enron scandal.
While the simple reconstitution of a task force is unlikely to dramatically alter the law enforcement landscape, this development may be one part of a more sweeping set of changes that could result in considerable increases in the magnitude, focus and efficiency of efforts to pursue financial wrongdoing.
- First, the revised mandate of the task force signals the Administration’s focus on issues directly relevant to the current financial crisis and to the use of economic recovery and stimulus funds. These include fraudulent mortgage lending, retirement plan fraud, lending discrimination claims, and the misuse of federal recovery funds.
- Second, federal law enforcement agencies continue to significantly increase the resources devoted to investigating and prosecuting financial misconduct. In this context, greater cooperation among these agencies could increase their impact still further.
- Finally, the FFETF provides a mechanism for more coordination among federal, state and local officials, and while such cooperation has been difficult to achieve in the past, to the extent that federal, state and local authorities can work together, their combined efforts seem certain to become more focused and more consistent.
These points are considered in more detail below.
The FFETF
Federal authorities have formed a task force that seeks to coordinate federal, state and local efforts to investigate and prosecute fraud and other financial misconduct. The FFETF was established on November 17, 2009, pursuant to an Executive Order signed by President Obama. http://www.justice.gov/opa/documents/fftf-eo-11-17-09.pdf.
At a press conference led by three cabinet-level officials and the Director of Enforcement of the Securities and Exchange Commission (SEC), Attorney General Eric Holder noted “a growing sentiment that Wall Street does not play by the same rules as Main Street,” and promised that the government “will not allow these actions to go unpunished.” http://www.justice.gov/opa/pr/2009/November/09-opa-1243.html. Mr. Holder said that the task force will focus on enforcement efforts that are significant “in this time of economic recovery,” including mortgage fraud, securities fraud, fraud related to economic recovery efforts and discrimination in lending and financial markets.
Housing and Urban Development (HUD) Secretary Shaun Donovan said that interagency collaboration is “absolutely essential” to avoid duplication of efforts and to achieve “more effective investigations and enforcement.” Treasury Secretary Tim Geithner said that while efforts to reform regulation of the financial system are important, “we need more than new rules. We need more than a new system with fewer gaps and greater oversight. We also need a much more aggressive strategy of enforcement.”
The FFETF replaces an earlier task force created by the Bush Administration in the wake of Enron and other corporate scandals in 2002, the President’s Corporate Fraud Task Force. http://www.justice.gov/dag/cftf/execorder.htm. This previous task force claimed to have obtained more than 1300 corporate fraud convictions, although it had apparently failed to address many of the issues relating to the financial crisis that emerged during 2008. At the November 17, 2009 press conference, Treasury Secretary Geithner said that the FFETF seeks to bring “a more aggressive, preemptive and proactive approach, across federal agencies and alongside state governments, to stop trends in financial fraud as early as possible.”
What's New About the FFETF?
Like its predecessor, the FFETF is charged with providing advice to the Attorney General on the investigation and prosecution of financial misconduct. But there are differences in several respects.
Expanded focus. In addition to addressing securities fraud, mail and wire fraud, tax fraud, and money laundering, the FFETF is to focus on the pursuit of additional offenses, including bank, mortgage, loan and lending fraud; commodities fraud; retirement plan fraud; False Claims Act violations; unfair competition; and discrimination.
Coordination with non-federal authorities. The prior task force had been directed to advise the Attorney General on ways to enhance cooperation among federal, state and local authorities. The FFETF has a stronger mandate, having been directed to “coordinate law enforcement operations” with representatives of state, local, tribal and territorial law enforcement.
Expanded membership. The FFETF will include representatives of 7 Executive Branch departments, 9 regulatory agencies, and 9 other government agencies.
The prior task force was comprised of the Assistant Attorneys General of the Criminal and Tax Divisions, the Director of the Federal Bureau of Investigation, and U.S. Attorneys for seven specified districts (C.D. Cal., N.D. Cal., N.D. Ill., E.D.N.Y., S.D.N.Y., E.D. Pa., and S.D. Tex.). The FFETF does not include these officials.
The prior task force had also included an interagency group comprised of the heads of the Departments of Labor and Treasury; the Chairpersons of the SEC, the CFTC, and the FCC; and the Chief Inspector of the Postal Service. This group was expanded in January 2009 to include the Director of the Federal Housing Finance Agency, the Comptroller of the Currency, the Director of the Office of Thrift Supervision, the Chairman of the Federal Reserve Board, the Secretary of HUD, and the Special Inspector General for the Troubled Asset Relief Program (TARP).
The FFETF provides for each of these entities to designate a representative to the task force, and expands this list to include representatives of the Departments of Commerce, Education, and Homeland Security; the Federal Trade Commission; the Federal Deposit Insurance Corporation; the Small Business Administration; the Social Security Administration; the Internal Revenue Service’s Criminal Investigations Division; the Financial Crimes Enforcement Network; the Secret Service; Immigration and Customs Enforcement; and the Inspectors General for HUD and the Recovery Accountability and Transparency Board.
The Executive Order creating the FFETF provides for expansion of its membership to include Inspectors General of other federal entities, and other federal officials, as necessary.
The Executive Order also encourages the Attorney General to invite the participation, as appropriate, of state attorneys general, local district attorneys, and any other state, local, tribal, or territorial law enforcement officials.
Perhaps in recognition of the very large membership of the task force, the FFETF’s mandate authorizes the Attorney General to create a steering committee chaired by the Deputy Attorney General, as well as subcommittees to address enforcement efforts, training, information sharing, and victims rights issues. Indeed, the nearly unmanageable size of the task force suggests that its primary purpose may be symbolic. Yet as discussed below, there are several other insights to be drawn from the Administration's reconstitution of a Bush-era mechanism.
What Might Be the Significance of the FFETF?
The creation of the FFETF does not, in itself, seem to significantly alter the law enforcement landscape, but it does signal the Administration’s desire to expand the scope of its law enforcement efforts to include issues directly relevant to the current crisis and to the use of economic recovery and stimulus funds. Thus, we are likely to see further efforts, not only relating to fraudulent mortgage lending practices, but also to retirement plan fraud, lending discrimination claims, and the misuse of federal recovery funds (as evidenced by the inclusion of the Inspectors General for HUD, the Recovery Accountability and Transparency Board, and the TARP.)
More significantly, other developments strongly suggest that the Administration’s stated intentions to pursue financial misconduct will be backed up by allocating substantially increased law enforcement resources to the effort. Developments along these lines include Attorney General Holder’s announcement, earlier this year, that DOJ had doubled the number of agents dedicated to investigating and prosecuting mortgage fraud. http://www.justice.gov/ag/speeches/2009/ag-speech-090406.html. The FBI’s 2010 budget reflects an increase of 143 positions, including 50 agents, for the investigation and prosecution of mortgage fraud. http://www.justice.gov/jmd/2010justification/pdf/fy10-fbi.pdf. Senator Dodd’s financial reform proposal would provide for self-funding for the SEC, which would significantly increase the resources available to that agency for enforcement efforts. http://banking.senate.gov/public/index.cfm?FuseAction=Files.View&FileStore_id=943242e1-ca66- (Section 991 at page 830). As law enforcement agencies are armed with significantly greater resources, the prospect of enhanced cooperation among them, as promised by the FFETF, could result in a quantum leap in the effectiveness of federal law enforcement efforts in this area.
Finally, the FFETF provides a mechanism for more coordination among federal, state and local officials. In the past, such coordination has been rare – indeed, as was the case with the research analyst and market timing scandals earlier in the decade, state and federal authorities more often seem in competition with each other. The political dynamics that have fuelled such competition will be difficult to overcome; however, to the extent that federal, state and local authorities can cooperate, their combined efforts seem certain to become more focused and more consistent, and if this potential can be realized, the task force will make a real difference.
