Right out of the gate, a newly created government task force on mortgage fraud announced on Friday the issuance of 11 civil subpoenas to financial institutions. The announcement followed on the heels of President Obama’s State of the Union address, in which he said that his administration would be forming a new financial crimes unit to bring more accountability for the “recklessness” that led to the financial crisis of 2008.
On Friday, Attorney General Eric Holder, Jr., officially put both names and a face on the unit: the Residential Mortgage-Backed Securities Working Group (RMBS) will draw on the skills of 55 people from the ranks of various government offices, including the FBI, the IRS, the Consumer Financial Protection Bureau, and several United States Attorneys.
Given that a Financial Fraud Enforcement Task Force (FFETF) has been in place since November 2009, some have wondered: How are this unit’s goals distinct from those of other government overseers?
“I think it may provide some marginal value to what’s already in place,” says Eugene Goldman, former senior counsel in the Securities and Exchange Commission’s enforcement division.
To date, the FFETF has been involved in 13 successful civil cases and criminal prosecutions. Criminal conduct at hedge funds, a mortgage company, and a bank have resulted in prison sentences ranging from five to 30 years, according to the Associated Press. But there’s also been some criticism that the administration has not done enough to take to task those who contributed to the 2008 meltdown.
For his part, New York Attorney General Eric Schneiderman has made waves recently for the objections he has raised to a possible settlement between state attorneys general and five major mortgage servicers. “I wasn’t willing to provide a release that. . . released conduct that hadn’t been investigated, essentially. So we started our own investigation” in New York, he recently told NPR.
Now, Schneiderman is one of five co-chairs of the RMBS, alongside Lanny Breuer, assistant attorney general, criminal division at the U.S. Department of Justice; Robert Khuzami, the SEC’s director of enforcement; John Walsh, U.S. Attorney for the district of Colorado; and Tony West, assistant attorney general in the civil division at the DOJ. Holder is the overall leader of the working group.
Goldman notes that one potential benefit of the new working group is enhanced communication between federal and state officials. The way the group is structured, the prosecutors involved have said they intend to share information “in a way that does not run afoul of grand jury secrecy,” Goldman says.
The working group may also provide more focus for matters coming out of the CFPB, Goldman says, now that the bureau has a director, following the president’s recess appointment of Richard Cordray as head of the CFPB. “Having the director in place under the [Dodd-Frank] statute furnishes the bureau with enhanced enforcement powers,” Goldman says.
But overall, Goldman adds, “it’s unclear what additional benefit this will have.”
In addition, some critics are calling out the addition of the new task force as a political move by the Obama administration. “While any fraud needs to be exposed and prosecuted, it is disappointing that this new task force has been created with seemingly political overtones and is co-chaired by one of the more overtly partisan state AGs,” says Lisa Rickard, president of the U.S. Chamber Institute for Legal Reform. “This new effort will only inject more uncertainty into the financial services industry due to election-year politics driving a so-called enforcement strategy.”
