For The Defense, October 2010 - DRI Today
For The Defense, October 2010 - DRI Today
For The Defense, October 2010 - DRI Today
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G O V E R N M E N T E N F O R C E M E N T A N D C O R P O R AT E C O M P L I A N C E<strong>Defense</strong> counsel will needto balance the sophisticatedfinancial aspects of thecase with the street crimenature of the investigationand prosecution of the case.Recent Legislation Explainsthe Increase in Prosecutionof Mortgage Fraud CasesOn May 20, 2009, President Obama signedinto law the Fraud Enforcement and RecoveryAct of 2009 (FERA). FERA providesthe federal government with new andimproved tools to investigate and prosecutemortgage, corporate and other financialfrauds. <strong>The</strong> purpose of FERA is toincrease enforcement oversight over thetypes of financial frauds that contributed tothe current economic crisis. Among otherthings, FERA:• provides substantial funding andresources to the Justice Department,the FBI, the U.S. Postal Inspection Services,the U.S. Secret Service, and theInspector General for the Departmentof Housing and Urban Development forenforcement activities, including $50million per year to the U.S Attorney’soffices to staff the FBI’s fraud strikeforces, and $40 million to Departmentof Justice criminal, civil and tax divisionsto provide litigation and investigativesupport in fraud cases;• modifies the definition of “financialinstitutions” in the criminal code toinclude mortgage lending businessesthat are not directly regulated or insuredby the federal government. FERA §2(a)(modifying 18 U.S.C. §20);• amends the false statements in mortgageapplications statute to criminalize makinga material false statement or willfullyovervaluing a property in order toinfluence any action by a mortgage lendingbusiness. FERA §2(c) (modifying 18U.S.C. §1014);74 n <strong>For</strong> <strong>The</strong> <strong>Defense</strong> n <strong>October</strong> <strong>2010</strong>• strengthens the Civil False Claims Act(31 U.S.C. §3729 et seq.) to ensure thatthe government can recover taxpayerdollars purportedly lost to fraud andabuse; and• establishes a Financial Crisis InquiryCommission (the “Commission”) toinvestigate the causes of the currentfinancial and economic crisis. <strong>The</strong> Commissionhas the power to hold hearingsand to compel production of documentsand testimony. <strong>The</strong> Commission willsubmit a report on December 15, <strong>2010</strong>,that will contain findings and conclusionsregarding the causes of the currentfinancial and economic crisis.Prior to FERA, private mortgage lenderswere not subject to the same kind of oversightand regulations as traditional financialinstitutions. FERA extended criminallaws to cover private mortgage companies—to“level the playing field”—in thesame way that existing regulations applyto federally insured and regulated financialinstitutions.On November 17, 2009, President Obamasigned an executive order establishing anew interagency Financial Fraud EnforcementTask <strong>For</strong>ce (“Task <strong>For</strong>ce”) to combatfinancial crime. <strong>The</strong> Task <strong>For</strong>ce was established“to lead an aggressive, coordinated,and proactive effort to investigate and prosecutefinancial crimes.” <strong>The</strong> Task <strong>For</strong>ce isdesigned to strengthen collective efforts offederal, state and local agencies to investigateand prosecute significant financialcrimes relating to the current financial crisis;to recover illegally obtained funds; andto ensure just and effective punishment forthose who perpetrate financial crimes.<strong>The</strong> Department of Justice and FBI fieldoffices worked to establish more than 75regional task forces and working groupsaround the country. <strong>The</strong>se efforts have successfullytargeted real estate professionalsincluding bankers, brokers, appraisers andlawyers who allegedly engaged in fraudulentactivities. On December 9, 2009, LannyBreuer, Assistant U.S. Attorney General,reported the following task force results tothe United States Senate Committee on theJudiciary:• On <strong>October</strong> 8, 2009, in the Southern Districtof Texas, a jury convicted a Houstonloan officer at a financial institutionfor submission of fraudulent loan applicationsand packages to residential lendersacross the country resulting in over$24 million dollars in fraudulent loans.<strong>The</strong> defendant and her co- conspiratorsmisrepresented the credit- worthiness ofindividual borrowers who were recruitedto purchase multiple properties.• On August 10, 2009, in the Central Divisionof California, two real estate professionalswere convicted for their roles ina massive mortgage fraud scheme thatcaused more than $40 million in lossesto federally insured banks. <strong>The</strong> jury convicteda prominent Beverly Hills realestate agent and licensed appraiser oncharges of conspiracy, bank fraud andnumerous loan fraud charges for theirroles in the mortgage fraud scheme.Eight other real estate professionals pledguilty to federal felony charges for theirroles in this scheme.• In November 2009, the Middle Districtof Florida announced the resultsof a nine-month long “Mortgage FraudSurge” that resulted in charges againstmore than 100 defendants involvingmore than $400 million in loans onmore than 700 properties.On June 17, <strong>2010</strong>, members of the Task<strong>For</strong>ce released the results of a nationwideinitiative called “Operation StolenDreams,” that targeted mortgage fraudstersthroughout the country. Operation StolenDreams is the largest collective enforcementeffort to confront mortgage fraud. SeeDepartment of Justice Press Release datedJune 17, <strong>2010</strong>. From March 1, <strong>2010</strong>, throughJune 17, <strong>2010</strong>, “Operation Stolen Dreamshas involved 1,215 criminal defendantsnationwide, including 485 arrests, who areallegedly responsible for more than $2.3billion in losses. Additionally, … the operationhas resulted in 191 civil enforcementactions which have resulted in the recoveryof more than $147 million.” Id. In a pressconference announcing the results of OperationStolen Dreams, FBI Director RobertS. Mueller III stated that “[f]rom homebuyers to lenders, mortgage fraud has hada resounding impact on the nation’s economy.”Mueller issued a warning: “[t]hosewho prey on the housing market shouldknow that hundreds of FBI agents on taskforces and their law enforcement partnersare tracking down your schemes and youwill be brought to justice.”