The announcement that President Barack Obama would create a task force devoted to cracking down on financial fraud comes comes just three years after he announced a different fraud task force, leaving many in the enforcement community scratching their heads.
In his State of the Union address on Tuesday night Obama announced the formation of the financial crimes unit. This will be a "special unit of federal prosecutors and leading state attorneys general to expand our investigations into the abusive lending and packaging of risky mortgages that led to the housing crisis," he said. "This new unit will hold accountable those who broke the law, speed assistance to homeowners and help turn the page on an era of recklessness that hurt so many Americans."
The language was reminiscent of a speech Obama gave in November 2009 when he announced the creation of the Financial Fraud Enforcement Task Force, a sprawling investigative unit established to "hold accountable those who helped bring about the last financial crisis as well as those who would attempt to take advantage of the efforts at economic recovery."
With representatives from more than 20 federal agencies and 94 U.S. attorneys offices, that task force, created in 2009, has disappointed critics who argue that it has chosen to pursue relatively small fraudsters while leaving alone the major offenders, including the CEOs of banks that wrongfully foreclosed on struggling homeowners.
"Look at what happened with WorldCom ... Those guys were committing fraud at their own companies, and still they went to jail for what they did," said a prominent securities lawyer who wished to remain anonymous, referring to the fates of CEO Bernard Ebbers and other WorldCom executives. In comparison, "these financial shenanigans had an impact way beyond any one company, and these guys are still walking around free," said the lawyer. "There's just not been much effort to hold Wall Street or any of these other guys accountable."
So what will make this new investigative group any better?
One difference is that the new unit will pool state and federal resources to leverage impact, said an official with the Department of Justice. "Given that there are federal, state, civil and criminal components to these investigations, marshaling our efforts will be more effective."
Another key difference is the new unit's narrow focus, enabling the investigators to delve deeply into the issues instead of having to spread themselves across a variety of different types of fraud, said the DOJ official. Specifically, whereas the older task force is charged with investigating the financial fraud that led to the economic crisis in the broadest sense -- corporate fraud, insider trading, Ponzi schemes -- this working group is very narrowly targeted to fraud related to the origination and securitization of mortgage loans.
For some consumer advocates, the new unit sounds promising. "I think it is a good sign that the administration has made this commitment to pursuing origination fraud," said Diane Thompson, counsel for the National Consumer Law Center, one of the nation's premier consumer organizations. "There has been a dearth of accountability for the fraud that landed us in the global economic catastrophe we are living through."
Others remain less convinced. "I am agnostic about this," said Dean Baker, an economist and co-director of the Center for Economic and Policy Research.
Eric Schneiderman, the New York attorney general, is one of the new unit's five co-chairs. Schneiderman gained prominence last year with his resistance to the deal being negotiated between the Obama administration, the Department of Justice and the majority of the state attorneys general with five of the nation's largest banks after their being charged with falsifying mortgage documents and inappropriately denying loan modifications to needy homeowners, among other wrongdoings. Schneiderman has resisted participating in any deal that doesn't allow states to pursue their own cases against the mortgage companies. The new group is a subunit of the larger task force.
"I have respect for Schneiderman, but he is basically joining an existing task force on mortgage fraud that has done nothing for two years," Baker said. "Perhaps he will be able to turn things around, but if that was the intention it would seem to make more sense to simply let him set up his own task force."
Three of the new unit's co-chairs have also served on the Financial Fraud Enforcement Task Force, which raises concerns for David Dayen, a progressive blogger who's written extensively on the housing crisis.
"Three of the five co-chairs of this panel have a history of dragging their feet on enforcement against the banks in precisely the same areas that this panel will allegedly investigate," wrote Dayen in a post. Dayen is referring to Tony West, assistant attorney general for the civil division, Robert Khuzami, director of enforcement for the Securities and Exchange Commission, and Lanny Breuer, assistant attorney general for the criminal division. In addition to Schneiderman, the final co-chair is John Walsh, U.S. attorney general for the district of Colorado.