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More than six years after the collapse of Enron Corp. heralded a new era of corporate investigations and compliance, attorneys at the fraud section of the Justice Department’s Criminal Division are back on the trail of misdeeds on Wall Street. Already, more than 14 corporations are being scrutinized for insider trading and accounting fraud related to subprime mortgage loans, the FBI announced earlier this year. The fraud section, in conjunction with the FBI, also has charged more than 200 people with mortgage fraud and other schemes through two ongoing enforcement programs — Operation Quick Flip and Operation Continuing Action. But unlike the massive accounting fraud scandals earlier this decade, there are no presidential or federal multiagency task forces being assembled to probe the subprime crisis. Instead, Justice Department prosecutors in the fraud section are still grappling with legal theories and what laws might apply. On March 21, Attorney General Michael Mukasey told reporters that lawyers at Main Justice are still debating what prosecutions to bring and if legislation may be necessary to address some of the suspected wrongdoing. “In order to have a task force you need to identify the task,” he said. “That’s kind of what we’re working on now.” He also predicted no quick results because of the complexity of the investigations. The fraud section — with about 50 lawyers — is headed by Steven Tyrrell, a career federal prosecutor who served in Miami and New York and who previously was a deputy chief in the counterterrorism section. A Criminal Division spokeswoman said officials there declined to comment or give statistics about their work. Larry Thompson, a former deputy attorney general and ex-chairman of the presidential corporate fraud task force created in the wake of Enron, says there are signs of increased government oversight of the markets, and there is a potential for a new governmentwide task force. “It could have an enforcement or regulatory focus, or a combination of the two,” says Thompson, PepsiCo.’s senior vice president for governmental affairs and general counsel. Meanwhile, some in the white-collar bar predict a potential windfall for legal defense work arising out of the subprime mess as the Justice Department and the Securities and Exchange Commission rev up their enforcement. From mortgage lenders to banks peddling mortgage-backed securities, hedge fund managers, credit-rating agencies, and securities brokers-dealers — there is no shortage of potential targets, a former SEC and Justice attorney says. “It plays out like dominoes. There are several layers of players, all of which are prime for investigation,” says Thomas Zaccaro, a litigation partner at Paul, Hastings, Janofsky & Walker in Los Angeles. “There’s going to be a lot of legal work, both in regards to the government investigations and private litigation.” A former SEC trial attorney who handled financial fraud, accounting fraud, insider trading, and other enforcement actions, Zaccaro also was a federal prosecutor in the Southern District of New York and an attorney in the Justice Department’s organized crime and racketeering section. But not everyone is as optimistic about the prospects for a return to the heyday of corporate investigations. In 2007, corporate fraud indictments were down to one a month from about seven a month between 2002 and 2005, according to a November 2007 report in The American Lawyer, a sibling publication to Legal Times. “I don’t think you’ll see an avalanche anywhere near the post-Sarbanes-Oxley [Act] or post-Enron era,” says Joshua Hochberg, a partner at McKenna, Long & Aldridge in D.C. who was replaced by an acting fraud section chief in September 2005. “Mortgage fraud is a much narrower area than the types of abuses that were uncovered in the years following Enron.” Hochberg says the fraud section — where resources are already tight — should be used as a “quick response team” that can deploy Justice lawyers with specialized skills to U.S. attorney’s offices. “They may not have the expertise or white-collar staff,” he says of the field offices. “Main Justice can always play a coordinating role.” Zaccaro recently published a client alert listing financial fraud, insider trading, and the bundling of subprime loans into securities as the three major areas where investigators are focusing their efforts. Despite the scrutiny, he says he foresees more civil enforcement and litigation than prosecutions. “We’re sort of crystal-balling based upon what we’ve seen,” Zaccaro says. “I think these are tough cases for the government to prove because they have to show state of mind.”
Pedro Ruz Gutierrez can be contacted at [email protected].

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