Federal officials are not keeping secret their escalated efforts to prosecute
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.