Federal officials are not keeping secret their escalated efforts to prosecute
financial fraud crimes involving U.S. government funds as well as U.S.
government-backed or government-insured funds. Prior to the economic turbulence
of the past few years, civil and criminal actions against firms suspected
of defrauding government agencies or their proxies were mostly separate
matters. But FBI investigators and Department of Justice prosecutors have
announced their intention to investigate alleged wrongdoing involving
federal funds, and individual criminal indictments have become more common.
In June, the Financial Fraud Enforcement Task Force, which includes Attorney
General Eric Holder, FBI Director Robert Mueller, and Housing and Urban
Development (HUD) Inspector General Kenneth M. Donohue, announced results
produced by Operation Stolen Dreams, a comprehensive and unprecedented
mortgage fraud enforcement effort. According to the task force, the initiative
has already led to the investigation of over 1,200 potential criminal
defendants and resulted in hundreds of arrests across the country, based
on billions of dollars in alleged losses involving federal funds. Hundreds
of civil enforcement actions have been launched as well, with judgments
to date approaching $150 million.
A recent prominent example involves the Florida mortgage lender Taylor,
Bean & Whitaker Mortgage Corp., which was investigated due to its
pursuit of a $3 billion investment of Toxic Asset Recovery Program (TARP)
funds. The chairman of the firm, Lee Farkas, was charged with conspiracy
to commit bank, wire and securities fraud in June against the Federal
Housing Authority for allegedly using fraudulent schemes to prop up his
mortgage firm prior to filing for bankruptcy in 2009.
The Wall Street Journal has identified this as the largest TARP fraud case
yet. The Special Inspector General for the Troubled Asset Relief Program
described it as "one of the most significant criminal cases to arise
from the financial crisis thus far" in its quarterly report to Congress.
Media scrutiny of this case will no doubt increase as Farkas's November
trial date approaches.
Complex TARP Fraud Prosecutions May Take Years to Resolve
The increased volume of mortgage fraud cases involving TARP funds and borrower
assistance measures such as the Home Affordable Modification Program (HAMP)
will occupy a great deal of federal court attention in coming years. Federal
prosecutors have significant resources on their side, and the immense
quantities of business records and other documentary evidence involved
creates a considerable challenge for criminal defense attorneys and their
clients. In the Farkas case, the investigation involved not only the FBI
and DOJ, but also the Federal Deposit Insurance Corporation, the Department
of Housing and Urban Development, and the Internal Revenue Service. Unlike
previous practice, the current trend seems to be to launch criminal charges
first to allow civil cases to benefit from further investigation.
With the vast attention and criticism that the Obama Administration's
attempts to reinvigorate the economy have received, it is not surprising
that officials have moved aggressively to show voters that they are committed
to protecting the public trust. But financial fraud cases involving conspiracy
charges are enormously complex criminal matters, and the media rush to
prejudge alleged wrongdoers should not outpace the slow wheels of due
process. Justice can only be fulfilled after a clear presentation of evidence
from both sides, full consideration of questions of intent and other subjective
elements of the crime, and appellate review.
Other White Collar Crimes in the Wake of the Great Recession
The Financial Fraud Enforcement Task Force's effort comes during a
decade when public consciousness of many financial crimes has risen. From
forgery, credit card fraud and identity theft to insider trading, counterfeiting,
qui tam actions and securities fraud, federal and state dragnets regularly
make claims about the level of crime in various jurisdictions, and elected
officials put resources behind aggressive enforcement. But behind every
allegation is a defendant entitled to a presumption of innocence and an
exhaustive examination of the evidence.
By taking the reins of a defense strategy as soon as suspicion arises,
an experienced criminal defense attorney can act swiftly to head off excessive
charges, clear up confusion and, if necessary, hold the prosecution to
its burden of proof. Complex white-collar prosecutions demand dedicated
advocacy, broad familiarity with case law and statutes, and experience
with the challenges posed by federal criminal procedure.