The FBI to the Rescue

by Paul Kiel, ProPublica

It's the sort of leak that quickly becomes indistinguishable from a press release. The FBI is probing four of the stricken companies at the center of the current financial crisis, reports the AP, Washington Post, New York Times, Wall Street Journal, and Bloomberg. All outlets cite anonymous law enforcement sources who, naturally, are not named because they "aren't authorized" to speak publicly. But the sources seem to have done a fine job of making sure their message is publicized.

Just what Fannie Mae and Freddie Mac, Lehman Brothers and the American International Group are being investigated is remarkably hazy. Most news sources mention "possible" or "potential" fraud. Only Bloomberg approaches specifics, reporting that investigators are reviewing "possible accounting misstatements."

The reason for the haziness is abundantly clear: The FBI doesn't seem to have a clear indication that a crime might have been committed. The sources caution that the investigation is preliminary and only recently begun. A "government official" speaking to the New York Times provides the most candid explanation of the FBI's interest, telling the Times that it was "logical to assume" that those four companies would come under investigation because of the many questions surrounding their recent collapse.

Some of the pieces even come replete with efforts by the anonymous officials to tamp down expectations. The mortgage mess is so complicated that proving a criminal case will be very difficult, they say. Also, parts of the mortgage industry were so loosely regulated – or not regulated at all. That means far less information is available to investigators.

So why all the hullabaloo? The Times gets right to the heart of it in its lead: "The Federal Bureau of Investigation, under pressure to look at possible criminal activity in the financial markets, is expanding its corporate fraud inquiries in the wake of the tumult in the last 10 days, officials said Tuesday." Most of the sources, in fact, mention that the FBI is under considerable pressure to show that it is engaged in rooting out crimes that brought on the current crisis.

The FBI, in fact, has been trumpeting its efforts at cracking down on abuses in the subprime mortgage industry for quite some time. As we detailed back in July, the FBI's strategy has been two-fold:  pursuing 1. low-level mortgage fraud investigations that occur on the local level and 2. corporate fraud or securities fraud by the national mortgage companies and Wall Street banks.

But most of the FBI's successes thus far have been on the low end of the scale. "Operation Malicious Mortgage," the FBI's recent nationwide mortgage fraud campaign, led to charges against 400 defendants. Meanwhile, the Justice Department has charged two pairs of Wall Street bankers for securities fraud – one pair from Credit Suisse, the other from Bear Stearns, both of which dealt in mortgage-backed securities.

FBI Director Robert Mueller was keen to show the bureau's commitment to those higher-level investigations at a Senate hearing last week: "I do want to assure this committee that although we have over 1,400 open cases and almost 500 [mortgage fraud-related] convictions in just the past two years, just like in the S&L crisis of the early 1990s, as well as the corporate excesses at the beginning of this decade, the FBI will pursue these cases as far up the corporate chain as is necessary to ensure that those responsible receive the justice they deserve."

Reflecting that eagerness, the number of national corporations the FBI says are under investigation has been heading upwards. Last night's reports put the number at 26. Last week, Mueller testified that it was 24. When we reported on the prosecutions of the two Credit Suisse bankers three weeks ago, it was 19. In July, it was 18.

As to which ones those are, we only know a few: Two bankers from Bear Stearns have already been prosecuted. Then there are the four revealed last night: Lehman Brothers, AIG, and Fannie Mae and Freddie Mac. The Los Angeles Times has reported that a federal grand jury has issued subpoenas to Countrywide, New Century and IndyMac, three of the country's largest subprime mortgage lenders. Beyond that, it's unclear. (Credit Suisse might or might not be included in that total, since FBI officials have not explicitly acknowledged that it is part of the mortgage crackdown.)

But as the Wall Street Journal notes, investigators have yet to bag a dealmaker who symbolizes the current crisis the way Charles Keating, convicted for fraud related to the collapse of American Financial Corp., came to be the face of the S&L crisis. (Countrywide CEO Angelo Mozilo has at times seemed a likely candidate.) Until investigators land a big fish, the pressure is likely to continue.

Cross-posted at ProPublica, America's largest investigative newsroom.

Paul Kiel is a reporter for ProPublica. Read more of his work here.

Follow ProPublica on Twitter: www.twitter.com/@propublica

Comments

[mommadona]

Well here - let's help the FBI OUT:

JEB BUSH allows convicted felons to take out Mortgage Broker License by the 1000s

http://www.mortgagenewsdaily.com/7242008_Florida_Felon_Mortgage_License.asp

JEB BUSH is hired as an 'adviser' by Lehman Bros

http://www.reuters.com/article/fundsFundsNews/idUSN3046902620070830

JEB BUSH, on a panel, strongly advises State of Florida to invest in Lehman Bros stock

http://damnedliberal.com/blog/blog1.php/2008/09/15/jeb-bush-typifies-money-grubbing-politic

If an old woman on a laptop can find this stuff.......geesh.

[AshevilleVoice]

Well done!

[samlu1]

This plan is perfectly timed. What will happen is when any of these criminals are asked questions by anyone on the planet....they can simply use the motto that the early Bush jr. regime used for several years...which was...."not allowed to comment...currently under investigation". The FBI takes orders directly from Bush jr. It is unlikely he will ask them to investigate the very CEO's that he has appointed to cover up this mess. It is a perfectly timed excuse to never have to answer any questions until this criminal is out of office....now give me my $1 Trillion dollars please.

[candlepower]

Ok so here it is there's a wall street commission
publishes a 700 billion page document
it lists all the different government groups that knew this was going to happen
but guess what?
they just weren't talking to each other
why?
because that's the way the last eight years have been run
their solution?
set up a Department of Home Economic Security.
Not to be confused with 'egg boiling 101' or "Book-cooking 101"

[BizSpeaker]

What a mess!!! Remember the Romans’ motto "Divide and Conquer". Give people something to worry about of lesser significance to those in power than their own personal interests and their cronies; me-first and damn-the-consequences.
Apart from damage control, we need real solutions addressing the root cause of the problem, preventing the same thing from happening time and again, only with different players. We must realize that any system and in this instance the financial system is unbiased or impartial; it just performs the way it was programmed. It's no secret that the system is programmed (read rigged) to favor a small percentage of the population. Its pet-name is deregulation. How did they skew the system? Through lobbyists paddling influence/access to legislators. How do they do that? Ah, with money for their election campaigns. What would happen if we have the government i.e. us, We the people pay for political campaigns and ban all lobbyists from government premises? Ponder that for a while. Now, the question is, which system is broken, the financial or the political? You be the judge! Should anyone raise this issue, watch the politicians claiming that this is not the right time to tackle an "un-related" issue; we have more important matters to content with. When we get the bail-out package we haven't addressed the real issue, we haven't learned from our mistakes; we'll still be an accident in the waiting and some people stand to gain big-time!

[KillTheMessenger]

Operating within the limits of poorly thought out laws is not a crime.

If issuing poorly thought out laws would be a crime, the FBI would be investigating the legislature.

[larry278]

Have the G-men got anybody at Goldman, Sachs? Is that why Hank Paulson is sweating, grinding his teeth, mumbling, sometimes shaking? Do incontinent federal prisoners get issued Depends? Relax, Hank, all you did just now was blow your presentation. Yes, there are videos & the videos will be shown regularly on the 24/7 news cycle. Lawyer up pronto. Don't say anything unless you have a lawyer at your side constantly. Chuck Colson made a new career. Stop mumbling, Mitchell used to be big Lawyer up, now.