[House Hearing, 111 Congress]
[From the U.S. Government Publishing Office]





                     PROPOSALS TO FIGHT FRAUD AND 
                           PROTECT TAXPAYERS

=======================================================================

                                HEARING

                               BEFORE THE

                       COMMITTEE ON THE JUDICIARY
                        HOUSE OF REPRESENTATIVES

                     ONE HUNDRED ELEVENTH CONGRESS

                             FIRST SESSION

                                   ON

              H.R. 1748, H.R. 1292, H.R. 1667, H.R. 1788, 
                   H.R. 1779, H.R. 1793, and H.R. 78

                               __________

                             APRIL 1, 2009

                               __________

                           Serial No. 111-51

                               __________

         Printed for the use of the Committee on the Judiciary


      Available via the World Wide Web: http://judiciary.house.gov

                  U.S. GOVERNMENT PRINTING OFFICE
48-438 PDF                WASHINGTON : 2010
-----------------------------------------------------------------------
For sale by the Superintendent of Documents, U.S. Government Printing 
Office Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800; DC 
area (202) 512-1800 Fax: (202) 512-2104  Mail: Stop IDCC, Washington, DC 
20402-0001










                       COMMITTEE ON THE JUDICIARY

                 JOHN CONYERS, Jr., Michigan, Chairman
HOWARD L. BERMAN, California         LAMAR SMITH, Texas
RICK BOUCHER, Virginia               F. JAMES SENSENBRENNER, Jr., 
JERROLD NADLER, New York                 Wisconsin
ROBERT C. ``BOBBY'' SCOTT, Virginia  HOWARD COBLE, North Carolina
MELVIN L. WATT, North Carolina       ELTON GALLEGLY, California
ZOE LOFGREN, California              BOB GOODLATTE, Virginia
SHEILA JACKSON LEE, Texas            DANIEL E. LUNGREN, California
MAXINE WATERS, California            DARRELL E. ISSA, California
WILLIAM D. DELAHUNT, Massachusetts   J. RANDY FORBES, Virginia
ROBERT WEXLER, Florida               STEVE KING, Iowa
STEVE COHEN, Tennessee               TRENT FRANKS, Arizona
HENRY C. ``HANK'' JOHNSON, Jr.,      LOUIE GOHMERT, Texas
  Georgia                            JIM JORDAN, Ohio
PEDRO PIERLUISI, Puerto Rico         TED POE, Texas
LUIS V. GUTIERREZ, Illinois          JASON CHAFFETZ, Utah
BRAD SHERMAN, California             TOM ROONEY, Florida
TAMMY BALDWIN, Wisconsin             GREGG HARPER, Mississippi
CHARLES A. GONZALEZ, Texas
ANTHONY D. WEINER, New York
ADAM B. SCHIFF, California
LINDA T. SANCHEZ, California
DEBBIE WASSERMAN SCHULTZ, Florida
DANIEL MAFFEI, New York
[Vacant]

            Perry Apelbaum, Staff Director and Chief Counsel
      Sean McLaughlin, Minority Chief of Staff and General Counsel













                            C O N T E N T S

                              ----------                              

                             APRIL 1, 2009

                                                                   Page

                           OPENING STATEMENTS

The Honorable John Conyers, Jr., a Representative in Congress 
  from the State of Michigan, and Chairman, Committee on the 
  Judiciary......................................................     1
The Honorable Lamar Smith, a Representative in Congress from the 
  State of Texas, and Ranking Member, Committee on the Judiciary.     2
The Honorable Robert C. ``Bobby'' Scott, a Representative in 
  Congress from the State of Virginia, and Member, Committee on 
  the Judiciary..................................................     7
The Honorable F. James Sensenbrenner, Jr., a Representative in 
  Congress from the State of Wisconsin, and Member, Committee on 
  the Judiciary..................................................     8
The Honorable Daniel E. Lungren, a Representative in Congress 
  from the State of California, and Member, Committee on the 
  Judiciary......................................................     9
The Honorable Darrell E. Issa, a Representative in Congress from 
  the State of California, and Member, Committee on the Judiciary    10

                               WITNESSES

The Honorable Judy Biggert, a Representative in Congress from the 
  State of Illinois
  Oral Testimony.................................................    10
  Prepared Statement.............................................    12
The Honorable Neil Abercrombie, a Representative in Congress from 
  the State of Hawaii
  Oral Testimony.................................................    13
  Prepared Statement.............................................    15
The Honorable Elijah E. Cummings, a Representative in Congress 
  from the State of Maryland
  Oral Testimony.................................................    16
  Prepared Statement.............................................    18
Ms. Rita Glavin, Acting Assistant Attorney General, Criminal 
  Division, Department of Justice
  Oral Testimony.................................................    19
  Prepared Statement.............................................    22
Mr. John Pistole, Federal Bureau of Investigation
  Oral Testimony.................................................    55
  Prepared Statement.............................................    56
Mr. Jonathan Mintz, New York City Department of Consumer Affairs
  Oral Testimony.................................................    44
  Prepared Statement.............................................    46
Mr. Ira J. Rheingold, National Association of Consumer Advocates
  Oral Testimony.................................................    55
  Prepared Statement.............................................    56
Mr. Barry J. Pollack, National Association of Criminal Defense 
  Lawyers
  Oral Testimony.................................................    60
  Prepared Statement.............................................    62
Ms. Marcia G. Madsen, Institute of Legal Reform, Chamber of 
  Commerce
  Oral Testimony.................................................    70
  Prepared Statement.............................................    73
Mr. Joseph E.B. White, Taxpayers Against Fraud
  Oral Testimony.................................................    86
  Prepared Statement.............................................    88

          LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING

Prepared Statement of the Honorable John Conyers, Jr., a 
  Representative in Congress from the State of Michigan, and 
  Chairman, Committee on the Judiciary...........................     2

                                APPENDIX
               Material Submitted for the Hearing Record

H.R. 1748 , the ``Fight Fraud Act of 2009''......................   128
H.R. 1292, ``To amend Title I of the Omnibus Crime Control and 
  Safe Streets Act of 1968''.....................................   136
H.R. 1667, the ``War Profiteering Prevention Act of 2009''.......   141
H.R. 1788 , the ``False Claims Act Corrections Act of 2009''.....   144
H.R. 1779, the ``Financial Crimes Resources Act of 2009''........   167
H.R. 1793, the ``Money Laundering Correction Act of 2009''.......   175
H.R. 78, the ``Stop Mortgage Fraud Act''.........................   177

 
                     PROPOSALS TO FIGHT FRAUD AND 
                           PROTECT TAXPAYERS

                              ----------                              


                        WEDNESDAY, APRIL 1, 2009

                          House of Representatives,
                                Committee on the Judiciary,
                                                    Washington, DC.

    The Committee met, pursuant to notice, at 10:09 a.m., in 
room 2141, Rayburn House Office Building, the Honorable John 
Conyers, Jr. (Chairman of the Committee) presiding.
    Present: Representatives Conyers, Berman, Scott, Jackson 
Lee, Delahunt, Johnson, Baldwin, Maffei, Smith, Sensenbrenner, 
Coble, Gallegly, Lungren, Issa, King, Franks, Jordan, and 
Chaffetz.
    Staff present: (Majority) Perry Apelbaum, Staff Director 
and Chief Counsel; Robert Reed, Counsel; Brandon Johns, Staff 
Assistant; and (Minority) Sean McLaughlin, Chief of Staff and 
General Counsel.
    Mr. Conyers. Good morning, ladies and gentlemen. Today's 
hearing concerns itself with how best to fight fraud and 
protect taxpayers.
    We have 7 bills in front of us and 13 different statutes 
already law that deal with the problem of when companies cross 
the line.
    So what are we trying to do? We are trying to separate in 
this global economic crisis accidents, bad judgment, errors, 
huge mistakes that have been committed from those strategies, 
tactics or intentions to cross the line into the criminal code.
    In this multitrillion-dollar meltdown, it is very hard, 
especially with as little regulation and inquiry that has gone 
on so far, to determine which is which. And so we are here to 
begin this discussion with the Committee that has this very 
enormous responsibility.
    And so I am pleased to start this off. I will put the rest 
of my statement in the record. And I will yield to my friend 
from Texas, Mr. Smith, the Ranking Member of this Committee.
    [The prepared statement of Chairman Conyers follows:]
Prepared Statement of the Honorable John Conyers, Jr., a Representative 
in Congress from the State of Michigan, and Chairman, Committee on the 
                               Judiciary



                               __________

    Mr. Smith. Thank you, Mr. Chairman.
    Mr. Chairman, I appreciate your holding this hearing today 
on legislative proposals to address mortgage fraud, securities 
fraud, and other financial crimes.
    Congress cannot prevent all crime, but Congress can ensure 
that tough penalties are in place to punish offenders and deter 
future wrongdoers. And we can provide law enforcement officials 
and prosecutors with the resources and tools they need to bring 
criminals to justice.
    In times of crisis, crime often flourishes. Following the 
9/11 terrorist attacks and Hurricane Katrina, unscrupulous 
people chose to exploit these tragedies to pad their pockets 
with funds intended to help the victims.
    Bringing to bear the heavy hand of government in too heavy 
a manner can be counterproductive. This could lead to a long-
term reduction in credit, fewer bidders for government 
contracts, and higher costs for taxpayers. We must strike an 
appropriate balance in advancing anti-fraud legislation.
    Many of the bills on our agenda today strike that balance, 
though I am concerned with one or two others.
    I am pleased to join you, Mr. Chairman, as a sponsor of 
H.R. 1948, the Fight Fraud Act of 2009. This legislation amends 
Federal criminal laws to include fraud committed by mortgage-
lending businesses or other entities that provide mortgage 
loans. The Fight Fraud Act also authorizes additional funds for 
Federal law enforcement agencies and prosecutors charged with 
combating these fraud schemes.
    I am also pleased to join my colleague from California, Mr. 
Lungren, as a sponsor of his legislation to address money-
laundering, and Crime Subcommittee Chairman Scott, as a sponsor 
of his legislation to support the National White Collar Crime 
Center.
    I wish to commend the gentlelady from Illinois, Judy 
Biggert, for her legislation to provide additional resources to 
the FBI for its mortgage loan fraud investigations. And I thank 
Mr. Abercrombie for joining us today to speak about his war 
profiteering legislation, which I also support.
    Unfortunately, in addition to these bills that will help 
the government's effort to fight fraud, we are also considering 
the False Claims Corrections Act as part of the Committee's 
effort at addressing fraud. No one doubts the tremendous 
importance the False Claims Act has played in combating fraud 
in federally funded programs.
    Since 1986, when it was last amended, the Federal 
Government has recovered over $21 billion under the False 
Claims Act. However, as the act's success demonstrates, it is 
not in need of the substantial overhaul that the False Claims 
Act Corrections Act proposes.
    As currently drafted, this bill does not properly strike 
the balance between providing the government the tools it needs 
to fight fraud and ensuring that innocent recipients of Federal 
funds are not hauled into court to defend against lawsuits 
based on an overly broad law.
    I suspect that the provisions of this legislation will 
subject non-fraudulent conduct of too many organizations, 
including hospitals, universities, and non-profits to costly 
False Claims Act litigation, while at the same time taking away 
defenses against frivolous cases.
    Every Member of this Committee undoubtedly is concerned 
with combating fraudulent claims against the Federal 
Government. If there is identifiable fraud against the 
government that the False Claims Act is currently unable to 
address, we should amend the law to close the gaps, but I 
believe that, as currently drafted, the False Claims 
Corrections Act does go too far. In our haste to fix a few 
problems, we must be careful not to create new ones.
    Thank you, Mr. Chairman. I will yield back.
    Mr. Conyers. The Chairman of the Subcommittee on Crime, 
Bobby Scott of Virginia?
    Mr. Scott. Thank you, Mr. Chairman, for holding this 
hearing on fighting fraud and protecting taxpayers.
    As we explore ways to hold accountable unscrupulous 
mortgage brokers, Wall Street executives, government 
contractors, I hope this hearing will give us more insight on 
what is being done and particularly what is needed in the way 
of resources to investigate those suspected of serious crimes 
of fraud against the taxpayers.
    The underpinnings of the financial crisis began as banks 
and private mortgage companies relaxed their standards for 
loans, approving riskier mortgages with less scrutiny. This 
created an environment that some took as an invitation to 
fraud.
    In the last 3 years alone, the number of criminal mortgage 
fraud investigations opened by the FBI has more than doubled. 
The FBI has previously testified that it currently has more 
than 2,000 mortgage fraud investigations open, but only 250 
agents specifically assigned to those cases.
    I understand that, for the savings and loan debacle a few 
years ago, we had over 1,000 agents assigned to those cases. 
The amount of finances associated with this problem is 
approximately three times the size of the problem with the 
savings and loan debacle.
    So I support more resources for the Department of Justice 
to assist the FBI and the States in enforcing the fraud laws to 
recover the billions lost.
    I am not at this point persuaded that we need new criminal 
laws in this area. Many in this industry knew they were dealing 
with worthless paper. They even had names for the paper like 
``NINJA loans.'' That is ``no income, no job or assets'' loans. 
And they were laughing as they put these things together.
    These loans were then passed off as AAA assets. And when 
somebody sells the garbage as AAA assets, somebody along the 
way has committed common law fraud. To suggest that we need new 
criminal laws may suggest that the behavior that got us into 
this mess was not already criminal.
    And, furthermore, new laws and penalties could not be 
applied retroactively and therefore would not apply to those 
who committed crimes that has got us in the mess we are in 
today.
    I believe that Federal mail and wire fraud statutes should 
be sufficient to address the problem on the Federal level. 
Penalties associated with these statues are substantial. Mail 
and wire fraud violations carry a maximum penalty of 20 years, 
and any mail or wire fraud that affects a financial institution 
increases the maximum sentence to 30 years.
    It is not just mail and wire fraud that is at the disposal 
of Federal prosecutors. The FBI has already identified nine 
applicable Federal criminal statutes which may be charged in 
connection with mortgage fraud.
    And in addition to the Federal criminal law, these 
financial crimes can be also prosecuted by State and local law 
enforcement officials under aggressive and very punitive State 
criminal laws, as well.
    So, Mr. Chairman, what we need to do is provide more 
resources to law enforcement to prosecute the fraud, whether it 
is consumer I.D. theft, contracting fraud in Iraq, or mortgage 
fraud that affects us all today.
    In this regard, I have introduced H.R. 1779, the Financial 
Crimes Resources Act, that provides an authorization for 
additional funding to various government agencies responsible 
for enforcing financial fraud and identify theft laws. For 
example, the bill authorizes $100 million to the FBI for fiscal 
years 2010 through 2012 and $50 million to U.S. attorneys' 
offices to investigate and prosecute identify theft, financial 
fraud, financial crimes, and other fraud.
    The bill also provides resources to cover the costs 
associated with providing Federal defense services for these 
fraud cases. More importantly, the bill addresses the lack of 
funding at the State level. We need to provide adequate 
resources to State authorities to battle fraud, and we need to 
ensure that Federal authorities are coordinating with their 
State counterparts to ensure an effective approach.
    H.R. 1779 aims that achieving this task by allocating $250 
million at the State and local level to attack the low-hanging 
fruit of identity theft and predatory lending practices that 
Federal prosecutors fail to go after today.
    And, Mr. Chairman, I think it is appropriate to note that, 
if we spend this money on prosecution today, it will not only 
have a deterrent effect, but there is significant potential for 
fines and forfeiture that will offset most of the cost of 
prosecution.
    I am supportive of other bills that have been introduced to 
provide more resources to combat fraud. This includes H.R. 
1292, a bill that introduced with you, Mr. Chairman, and the 
Ranking Member of the full Committee, which would authorize 
funds for States to work with the information-sharing and 
training programs, such as the National White Collar Crime 
Center.
    The center has over 30 years of experience, provides a 
nationwide support network for State and local enforcement 
agencies involved in prevention, investigation and prosecution 
of economic, high-tech, and terrorism-related crime.
    In addition, both the Chairman's Fight Fraud Act and the 
bill introduced by the gentlelady from Illinois, Mrs. Biggert, 
the Stop Mortgage Fraud Act, contained provisions allowing for 
additional Federal resources to combat fraud, and I support 
these provisions, as well.
    Now, Mr. Chairman, I look forward to hearing from our 
witnesses on the legislative approach that we are going to take 
in dealing with the mortgage fraud and other financial fraud, 
and look forward to their testimony and suggestions on what we 
need to do.
    Thank you, and I yield back.
    Mr. Conyers. Former Chairman of Judiciary Committee for 6 
years, Jim Sensenbrenner.
    Mr. Sensenbrenner. Thank you very much, Mr. Chairman.
    The False Claims Act is the principal tool of law 
enforcement to combat fraud against Federal programs. 
Originally passed at the behest of President Lincoln during the 
Civil War for combat fraud against the Union Army, it has been 
amended several times, since then the most recent change in 
1986.
    Under the act, private parties or whistleblowers may bring 
a civil qui tam action for violations of the act for themselves 
and the U.S. government. The government has the primary 
responsibility for prosecuting the action when it opts to 
proceed with the matter. Any damage awards may be trebled and 
are apportioned among the whistleblower and the Treasury.
    I am sure no one here would argue that the False Claims Act 
has been anything but successful for the Federal Government. In 
the past 20-plus years, more than $20 billion in settlements 
and judgments have been achieved. A study found that the 
Federal Government is bringing back $15 for every dollar it 
spends pursuing FCA cases.
    Although the False Claims Act has been successful, there is 
always room for improvement. Several Federal courts have 
applied and interpreted provisions of the FCA in ways that have 
substantially weakened the law. For example, the False Claims 
Act Correction Act closes the loopholes that permit fraudsters 
from stealing with impunity and from allowing the government to 
fully recover stolen funds.
    Last year in Allison Engine, the courts stressed its hands 
were tied when it held that the Justice Department could only 
prosecute those who steal government funds from the government 
itself.
    With the U.S. government relying on private contractors to 
disburse funds for everything from our Medicare prescription 
drug program to our war efforts in Iraq, billions of Federal 
dollars are now in jeopardy. The bailouts that Congress is 
approving left and right, without the proper transparency or 
accountability, only adds to the government funds in jeopardy 
from the fraudsters.
    It is my hope that the House passes the proposed amendments 
this year and removes the debilitating qualification that fraud 
perpetrators use to hide behind judicially created 
qualifications and evade liability.
    I yield back the balance of my time.
    Mr. Conyers. Mr. Lungren or Mr. Issa, are you so inclined?
    Mr. Lungren?
    Mr. Lungren. Thank you very much, Mr. Chairman.
    As one who has supported the False Claims Act amendments in 
the past and voted basically for the restoration of this law or 
the effective restoration of this law during the Reagan 
administration, I might just mention that this does have a 
Republican heritage to it.
    It was asked for in its concept by Abraham Lincoln. The 
Congress passed it. It was signed by Abraham Lincoln. It was 
effective, fell into disuse for a period after World War II. It 
was not until the 1980's when the Reagan administration asked 
it be resurrected in an effective mode that we passed it out of 
this Committee.
    It was on the floor. It was passed in the House and the 
Senate, signed by President Reagan. Because of some court 
decisions which basically say, if you are not the direct 
contractor, you are a subcontractor, we cannot go after this, 
we need this change.
    It also clarifies some things, streamlines some procedures 
both for dismissal and for people bringing this forward. And 
for those who would suggest that this is not the place for 
private action, I would just suggest that the gentleman from 
Wisconsin's statement that the Federal Government manages to 
recover $15 for every dollar it expends suggests that this is a 
very effective means by which we ride herd on those who would 
defraud our country.
    This goes to the question of war profiteers. It also goes 
to the question of those who would receive the benefit of the 
humongous stimulus package that we have voted and other 
spending that appears to be on the horizon.
    I thank the Chairman for the time.
    Mr. Conyers. Darrell Issa?
    Mr. Issa. I thank the Chairman for holding this hearing, 
and I look forward to voting for most, if not all, of these 
bills.
    I do have some concern with the modifications in the False 
Claims Act, somewhat differently than my colleague. Although I 
appreciate the Republican nature of this, I believe that the 
inherent nature between a contractor and their subcontractors 
is an important one where, if the Federal Government using 
third-party specialists to sue receives money, in a sense, for 
the government, that is fine.
    One of the challenges is that it ultimately runs up the 
cost for the general contractor. So although I accept the fact 
that whistleblowers through my Committee next door are 
essential, I am not sure that the bill as proposed really 
brings about the kind of cost-benefit that it could.
    In a nutshell, it doesn't cost that much to get 
whistleblowers to blow the whistle on subcontractors either to 
the government to take action or, more properly, to the 
government to inform the general contractors so the general 
contractor can find better subcontractors and save the 
government more money overall.
    But I do look forward to the hearing today and yield back.
    Mr. Conyers. Steve King? Okay.
    Trent Franks? Okay.
    Ladies and gentlemen, we are pleased to receive these 
comments of our Members who are here. Judy Biggert is a lawyer 
from Illinois, a Member of three Committees, Financial 
Services, Education and Labor, Science and Technology, has 
worked with this Committee in helping us set up discussions 
with--informal discussions with members of the Supreme Court 
over the years.
    I am happy to have her with us. And we have your statements 
all that are in the record and allow you to proceed at this 
time.

 TESTIMONY OF THE HONORABLE JUDY BIGGERT, A REPRESENTATIVE IN 
              CONGRESS FROM THE STATE OF ILLINOIS

    Mrs. Biggert. Thank you very much, Mr. Chairman and thank 
you and the Ranking Member, Smith, and the Members of the 
Committee for extending to me the opportunity to join you 
today. Given your agenda, I will be brief.
    Some years ago, the Chicago Tribune published a series that 
revealed that gangs in the Chicago area increasingly were 
turning to mortgage fraud. They found it easier and more 
lucrative than selling drugs, believe it or not. But it turns 
out that the gangs were not alone. Everyone, it seems, was in 
on the act.
    Just last week, the U.S. attorney in Chicago, Patrick 
Fitzgerald, brought mortgage fraud indictments against two 
dozen players. They are brokers, accountants, loan officials, 
and processors, and attorneys.
    Mortgage fraud comes in all shapes and sizes. Scam artists 
inflate appraisals, flip properties, and lie about information, 
including income and identity, on loan applications. Some used 
the identity of deceased people to obtain mortgages, and other 
desperate thieves bilked out of their homes and home equity the 
most vulnerable homeowners and seniors in dire financial 
straits.
    Let's face it: This is just the tip of the iceberg. And we 
in Congress, as we work to get the economy back on track and 
credit flowing again, we have to address what was at the root 
of the mortgage meltdown in the first place, and that is 
mortgage fraud.
    Mortgage fraud continues to be on the rise in record 
numbers. The FBI has reported that, in 5 years, its mortgage 
fraud caseload increased by 237 percent and investigations more 
than doubled in 3 years.
    During a 12-month period ending in 2008, mortgage fraud 
reports increased by 44 percent, reaching over 63,000 reports, 
with predictions of up to $25 billion in losses. On refinanced 
FHA loans, defaults have more than quadrupled.
    For the fifth year in a row, my State of Illinois secured a 
spot on the Mortgage Asset Research Institute's top 10 list of 
States with the most severe and prevalent incidents of mortgage 
fraud. In 2009, the mortgage fraud case report, issued last 
week, Illinois ranked third in the Nation, behind Rhode Island 
and Florida.
    As a former real estate attorney and Member of the House 
Committee on Financial Services, I have seen firsthand the 
devastating effects of mortgage fraud. It has plagued our 
financial system and economy.
    Most tragically, it has cost millions of American families 
their homes and required taxpayers to commit trillions of 
dollars to prop up the financial industry. It is just not fair 
to the good actors in the industry and the 90 percent of 
homeowners who are paying their mortgages on time.
    That is why I was pleased to join you, Mr. Chairman and 
Ranking Member Smith, in introducing H.R. 1748, the Fight Fraud 
Act, and I introduced H.R. 78, the Stop Mortgage Fraud Act. I 
look forward to working with you and the Members of this 
Committee on these important bills.
    Last Congress, the House three times passed in some form my 
bill, the Stop Mortgage Fraud Act, only to see it removed or 
ignored by the Senate. But I haven't given up, and I won't give 
up.
    This Congress, I reintroduced the Stop Mortgage Fraud Act 
to provide additional funds to the FBI and the Department of 
Justice to investigate and prosecute mortgage fraud.
    By bolstering Federal law enforcement's efforts, Congress 
can help to inject certainty and fairness into the mortgage 
system to restore investor, homebuyer and public confidence in 
the American dream and our financial system.
    As we work to modernize financial laws and regulations, it 
is our duty to supply Federal law enforcement with the tools 
and resources it needs to rapidly tackle fraud, particularly 
mortgage fraud. Fighting fraud must be a central role in 
solving the underlying problems that have undermined the 
economic recovery.
    With that, I respectfully request that you support H.R. 78, 
and I offer my continued commitment to improve the bill and 
move it through the legislative process.
    Thank you again for your time and dedication to this 
matter.
    [The prepared statement of Mrs. Biggert follows:]
           Prepared Statement of the Honorable Judy Biggert, 
        a Representative in Congress from the State of Illinois
    Chairman Conyers and Ranking Member Smith: thank you for extending 
to me the opportunity to join you today. Given your agenda, I'll be 
brief.
    Some years ago, the Chicago Tribune published a series that 
revealed that gangs in the Chicago area increasingly were turning to 
mortgage fraud. They found it easier and more lucrative than selling 
drugs. It turns out the gangs were not alone; everyone, it seems, was 
in on the act.
    Just last week, the U.S. Attorney in Chicago, Patrick Fitzgerald, 
brought mortgage fraud indictments against two dozen players. They are 
brokers, accountants, loan officers and processors, and attorneys.
    Mortgage fraud comes in all shapes and sizes. Scam artists inflate 
appraisals, flip properties, and lie about information, including 
income and identity, on loan applications. Some used the identity of 
deceased people to obtain mortgages. And other desperate thieves bilked 
out of their homes and home equity the most vulnerable homeowners and 
seniors in dire financial straits.
    Let's face it: this is just the tip of the iceberg. And as we in 
Congress work to get the economy back on track and credit flowing 
again, we have to address what was at the root of the mortgage melt-
down in the first place and that is mortgage fraud.
    Mortgage fraud continues to rise in record numbers. The FBI has 
reported that in 5 years, its mortgage fraud caseload increased by 237 
percent, and investigations more than doubled in three years. During a 
12-month period ending in 2008, mortgage fraud reports increased by 44 
percent--reaching over 63,000 reports--with predictions of up to $25 
billion in losses. On refinanced FHA loans, defaults have more than 
quadrupled.
    For the 5th year in a row, Illinois secured a spot on the Mortgage 
Asset Research Institute's (MARI) top ten list of states with the most 
severe and prevalent incidents of mortgage fraud. In MARI's 2009 
Mortgage Fraud Case Report--issued last week, Illinois ranked third in 
the nation, behind Rhode Island and Florida.
    As a former real estate attorney and member of the House Committee 
on Financial Services, I've seen first-hand the devastating effects of 
mortgage fraud. It has plagued our financial system and economy. Most 
tragically, it has cost millions of American families their homes and 
required taxpayers to commit trillions of their hard-earned dollars to 
prop-up the financial industry. It's just not fair to the good actors 
in the industry and the 90 percent of homeowners who are paying their 
mortgage on time.
    That's why I was pleased to join with you, Chairman Conyers and 
Ranking Member Smith, in introducing H.R. 1748, the ``Fight Fraud 
Act,'' and I introduced H.R. 78, the ``Stop Mortgage Fraud Act.'' I 
look forward to working with you and Members of this Committee on these 
important bills.
    Last Congress, the House three times passed--in some form--my bill, 
the Stop Mortgage Fraud Act, only to see it removed or ignored by the 
Senate.
    But I haven't given up, and I won't give up. This Congress, I 
reintroduced the Stop Mortgage Fraud Act, now H.R. 78, to provide 
additional funds to the FBI and Department of Justice to investigate 
and prosecute mortgage fraud.
    By bolstering federal law enforcement's efforts, Congress can help 
to inject certainty and fairness into the mortgage system--to restore 
investor, homebuyer, and public confidence in the American Dream and 
our financial system. As we work to modernize financial laws and 
regulations, it's also our duty to supply federal law enforcement with 
the tools and resources it needs to rapidly tackle fraud, particularly 
mortgage fraud. Fighting fraud must play a central role in solving the 
underlying problems that have undermined economic recovery.
    With that, I respectfully request that you support H.R. 78, the 
Stop Mortgage Fraud Act. I offer my continued commitment to improve the 
bill and move it through the legislative process. Thank you, again, for 
your time and dedication to this matter.
                               __________

    Mr. Conyers. Neil Abercrombie of Hawaii is a senior 
athlete, a jazz historian, and an unlicensed lawyer. So we are 
particularly happy to have him before us.
    Welcome, Neil.

 TESTIMONY OF THE HONORABLE NEIL ABERCROMBIE, A REPRESENTATIVE 
              IN CONGRESS FROM THE STATE OF HAWAII

    Mr. Abercrombie. Ah, there we are.
    Thank you very much, Mr. Chairman. Mahalo nui loa to you, 
and aloha to you and Mr. Smith and all the Members. Thank you 
very much for the opportunity to be with you.
    Mr. Chairman, before I begin, I want to express to you what 
I know is a shared feeling, I am sure by all the Members and 
the staff, that you will be losing Mr. Luis de Baca to the 
State Department, but I want to say that the Nation is all the 
more gaining from it and the world.
    He will be ambassador-at-large in the State Department in 
the area of trafficking in persons, particularly women and 
girls, throughout the world who are now suffering oppression, 
will find a great champion in Mr. de Baca. And I commend you 
and the Committee for having the foresight to have him with 
you. And I know we wish him all a bon voyage in his new role.
    Mr. Chairman and Members, I am very grateful to the 
Committee your hearing on H.R. 1667, and I want to thank Mr. 
Smith for his mentioning it in his remarks. This is a bill I 
believe that does not have an ideological equation or 
philosophical equation, a partisan equation, but one which is 
particularly American, going back, as was indicated by Mr. 
Lungren and others, something which the Members of Congress 
have had a shared obligation and responsibility for and about 
for decades.
    The War Profiteering Prevention Act of 2009 and other 
legislation which will begin to hold companies that accept and 
spend the public's money more accountable to the public.
    Mr. Chairman, as you know, this bill is part of a larger 
package of legislation intended to deter waste and abuse of 
public funds. It is absolutely essential to strengthen Federal 
law so that private-sector contractors who enter agreements 
with the government to provide goods and services will know 
that the misuse of public funds is a crime and that violators 
will be prosecuted and punished.
    It is also absolutely essential to strengthen Federal law 
so that the public knows that such behavior will no longer be 
tolerated.
    It is unfortunate that a relatively few American companies 
have wreaked complete havoc on our country's economy and 
provoked national outrage with their singular focus on profits 
at the expense of market stability, the long-term benefit of 
their customers, and any sense of business ethic.
    But it didn't just happen last year or just on Wall Street 
or just in our domestic housing and financial markets. The same 
corrupt atmosphere followed our military forces overseas and is 
the particular object of my bill.
    The last Administration privatized logistical support for 
combat and reconstruction operations in Iraq and Afghanistan to 
an extent unprecedented in our history.
    Wars have always been huge and highly profitable business, 
but never have we seen the pursuit of profit practiced with 
more cavalier disregard for the health and safety of our 
troops, the ultimate success of our reconstruction efforts, or 
the continuing support of the American public.
    In fact, some of our largest contractors have acted as if 
it was open season on the United States taxpayer. At least 10 
companies eventually have paid more than $300 million in 
penalties to resolve allegations of bid-rigging, fraud, gross 
overcharging, delivery of faulty military parts, and 
environmental damage in Iraq alone.
    Even more tragically, some of our soldiers have become 
casualties of shoddy work, simply because U.S. law has not 
fully brought these firms to account. There have been 16 
reported deaths of American soldiers and 2 civilians, not from 
combat, but from electrocution, as a result of shoddy work.
    Mr. Chairman, I wanted to add parenthetically that I am 
well aware of some of the commentary made about existing law 
with regard to fraud and misuse and abuse of public funds.
    Our difficulty here and the reason for this bill appearing 
before you is there is now some question as to the legal reach 
of these laws outside the Nation in warzones and combat zones, 
such as in Iraq and Afghanistan, and that is the object of the 
bill, not to reiterate what is already on the books, but rather 
to see to it that no legal obstacles might exist to be able to 
bring such perpetrators account.
    The United States has spent more than $50 billion to hire 
private contractors in Iraq to provide food, water, gasoline, 
and other supplies, guard bases, drive trucks, and many other 
activities in support of our troops or for reconstruction 
itself.
    Today, with an additional 21,000 troops planned for 
deployment to Afghanistan, along with billions of 
reconstruction dollars, contract accountability is an urgent 
need.
    Cleaning up this mess and preventing its recurrence has 
been hampered by the fact that anti-fraud laws that can protect 
against the waste or theft of U.S. tax dollars in the United 
States are not as clearly applicable overseas. There has been 
and is ambiguity in legal jurisdiction.
    An abundance of well-documented cases of contract fraud and 
abuse led to the introduction of the War Profiteering 
Prevention Act in 2007, to that bill's markup and hearing 
before this Committee, and to its passage in the full House in 
October 2007 by an overwhelming vote of 375-3.
    I am hoping that the three will re-read this bill and that 
we can prevail upon them to reconsider.
    However, the Bush Administration, through its testimony 
against the bill before your Committee and on the floor of the 
House, viewed this legislation as an example of burdensome 
regulation over the free enterprise system. As a result, action 
in the Senate was blocked.
    And as a result, we have worked the bill over in such a way 
as we hope and believe will meet the objections that existed 
previously.
    That bill was H.R. 400, has now been reintroduced in new 
form, which, as I say, I hope will address such questions as 
existed in 2007, introduced in the 111th Congress as H.R. 1667, 
which received, as I said, the favorable commentary of Ranking 
Member Smith.
    The War Profiteering Prevention Act of 2009, that is before 
you today. This measure is very brief and very direct. It 
defines contract fraud and specifies who will be covered by the 
law and where it will be in force. It does not have maybe some 
the general implications that found some objection previously.
    It establishes jurisdiction very clearly for the 
enforcement of the law and the prosecution under it. And it 
specifies the penalties for violation of the law in fines and 
possible imprisonment.
    It is profoundly distressing that such laws are necessary, 
but this bill is critical to our national security interests, 
both for the survival of our own economy and accountability to 
the taxpayer and the successful reconstruction in foreign 
nations gripped by extremism.
    We have seen what can happen without proper government 
oversight. We would be derelict in our responsibility to the 
public we serve if we did not take every step available to us 
to discourage such behavior in the future and punish those who 
violate the public trust.
    Therefore, Mr. Chairman and Mr. Smith, I appreciate today's 
hearing, certainly, and I appreciate the fact that you are 
having a hearing on the wider problems of fraud and corruption.
    And I certainly look forward to this Committee's markup and 
other pieces of reform legislation and their full consideration 
by the House and will do all I can to aid and assist you, 
should anyone still have any questions after we have gone 
through the House--after the House has worked its will.
    Thank you very much, Mr. Chairman. Mahalo nui loa.
    [The prepared statement of Mr. Abercrombie follows:]
         Prepared Statement of the Honorable Neil Abercrombie, 
         a Representative in Congress from the State of Hawaii
    Chairman Conyers and Members of the Judiciary Committee:
    I am grateful to the Committee for today's hearing on H.R. 1667, 
the War Profiteering Prevention Act of 2009, and other legislation 
which will begin to hold companies that accept and spend the public's 
money accountable to the public. I appreciate the opportunity to 
address the Committee on this matter.
    Mr. Chairman, as you know, this bill is part of a larger package of 
legislation intended to deter the waste and abuse of public funds. It 
is absolutely essential to strengthen federal law so that private 
sector contractors who enter agreements with the government to provide 
goods and services will know that the misuse of public funds is a 
crime, and that violators will prosecuted and punished. It is also 
absolutely essential to strengthen federal law so the public knows that 
such behavior will no longer be tolerated.
    It is unfortunate that a relative few American companies have 
wreaked complete havoc on our country's economy and provoked national 
outrage with their singular focus on profits at the expense of market 
stability, the long-term benefit of their customers and any sense of 
business ethic.
    But it didn't just happen last year, or just on Wall Street, or 
just in our domestic housing and financial markets. The same corrupt 
atmosphere followed our military forces overseas. The last 
Administration privatized logistical support for combat and 
reconstruction operations in Iraq and Afghanistan to an extent 
unprecedented in our history.
    Wars have always been huge and highly profitable business, but 
never have we seen the pursuit of profit practiced with more cavalier 
disregard for the health and safety of our troops, the ultimate success 
of our reconstruction efforts or the continuing support the American 
public. In fact, some of our largest contactors have acted as if it was 
open season on the U.S. taxpayer.
    At least ten companies eventually paid more than $300 million in 
penalties to resolve allegations of bid rigging, fraud, gross 
overcharging, delivery of faulty military parts and environmental 
damage in Iraq.
    Even more tragically, some of our soldiers have become casualties 
of shoddy work, simply because U.S. law has not fully brought these 
firms to account. There have been 16 reported deaths of American 
soldiers and 2 civilians, not from combat, but from electrocution.
    The U.S. has spent more than $50 billion to hire private 
contractors in Iraq to provide food, water, gasoline and other 
supplies, guard bases, drive trucks and many other activities in 
support of our troops and for reconstruction. Today, with an additional 
21,000 troops planned for deployment to Afghanistan along with billions 
of reconstruction dollars, contractor accountability is an urgent need.
    Cleaning up this mess and preventing its recurrence has been 
hampered by the fact that anti-fraud laws that can protect against the 
waste or theft of U.S. tax dollars in the United States are not as 
clearly applicable overseas. There has been ambiguity in legal 
jurisdiction.
    An abundance of well-documented cases of contract fraud and abuse 
led to the introduction of the War Profiteering Prevention Act in 2007, 
to that bill's mark-up and hearing before this committee, and to its 
passage by the full House in October 2007 by a vote of 375-3.
    However, the Bush Administration, through its testimony against the 
bill before your committee and on the floor of the House, viewed this 
legislation as an example of burdensome regulation over the free 
enterprise system. As a result, action in the Senate was blocked.
    That bill--H.R. 400--has now been reintroduced in the 111th 
Congress as H.R. 1667, the War Profiteering Prevention Act of 2009, and 
it is before you today.
    The measure is very brief and very direct. It defines contract 
fraud; it specifies who will be covered by the law and where it will be 
in force; it establishes jurisdiction for the enforcement of the law 
and prosecution under it; and it specifies the penalties for violation 
of the law, in fines and possible imprisonment.
    It is profoundly distressing that such laws are necessary, but this 
bill is critical to our national security interests; both for the 
survival of our own economy and accountability to the taxpayer, and the 
successful reconstruction of foreign nations gripped by extremism. We 
have seen what can happen without proper government oversight. We would 
be derelict in our responsibility to the public we serve if we did not 
take every step available to us to discourage such behavior in the 
future, and to punish those who violate the public trust.
    Mr. Chairman, I appreciate today's House Judiciary Committee 
hearing on HR 1667, the War Profiteering Prevention Act of 2009, and on 
the wider problems of fraud and corruption. I look forward to the 
Committee's mark-up of this and other pieces of reform legislation, and 
their consideration by the full House.
    I am grateful for the opportunity to testify and will do anything I 
can to assist the Committee in its deliberations.
                               __________

    Mr. Conyers. Elijah Cummings is the past Chairman of the 
Congressional Black Caucus, Member of the Transportation 
Committee, as well as the Armed Services Committee.
    Welcome this morning, Elijah.

TESTIMONY OF THE HONORABLE ELIJAH E. CUMMINGS, A REPRESENTATIVE 
             IN CONGRESS FROM THE STATE OF MARYLAND

    Mr. Cummings. Thank you very much. Thank you very much, Mr. 
Chairman. I am also a Member of the Government Reform Committee 
also, where we have spent a lot of time looking at fraud and a 
lot of the fraud that Mr. Abercrombie just talked about within 
the military. And, of course, looking at AIG and what is going 
on right now with regard to these TARP funds.
    Chairman Conyers, I want to thank you and Mr. Smith for 
inviting us today. And I commend both of you and this entire 
Committee for your tireless efforts and your ongoing efforts to 
protect consumers and prevent fraud, and I also appreciate the 
work of this entire Committee in that regard.
    I have worked closely with the administration of Governor 
Martin O'Malley in my home State of Maryland to make my 
constituents aware of the consumer protections available to 
them, and I am pleased to be here.
    From the instant the decision was made to inject taxpayer 
dollars into the private capital markets, I have beaten a drum 
for the rights of our Nation's involuntary investors.
    From for-profit loan-modification firms in the housing 
sector to corporate bonuses and retention payments on Wall 
Street, we have seen too many examples of our hard-working 
constituents getting taken advantage of at a time when many are 
very--are in desperate straits themselves.
    At the State level, the Maryland General Assembly has 
passed the Maryland Mortgage Fraud Act, explicitly making 
mortgage fraud a specific crime, as well as creating an 
affirmative obligation for all mortgage brokers and lenders to 
report cases of fraud, theft or forgery.
    More recently, we have all seen the emergence of the so-
called foreclosure or loan modification consultants. These scam 
artists charge high upfront fees to vulnerable consumers to 
supposedly help them obtain modifications of their loans.
    In reality, they are charging hard-working people for 
information that is available to them at no cost. Too often, 
these efforts result in both wasted money and wasted time. And 
that homebuyer is left with two bags in each hand, one bag 
says, ``Zero,'' and the other one says, ``Debt.''
    The bills to be considered by the Committee today would 
provide exactly the kind of tools we need to create stronger 
taxpayer protections. In the case of AIG, all taxpayers have 
been victimized.
    We have seen a pattern of less-than-full disclosure of 
AIG's uses of the TARP funds. First, we found out that they 
were attending conferences at lavish resorts, having their 
manicures, pedicures, and massages done at taxpayers' expense, 
after getting significant bailout money.
    Then we found out that they were issuing bonuses and 
retention payments even within the Financial Products division, 
whose actions brought AIG down and created the systemic turmoil 
that threatens our entire economy, not only of this country, 
but of the world.
    Mr. Liddy, the head of AIG, and his team at AIG have not 
convinced me that these bailout funds are always being used in 
the best interests of the taxpayer. And it is simply 
unacceptable that the taxpayers who provided these funds should 
have any doubts.
    I particularly commend you, Mr. Conyers, and Mr. Smith, 
Mrs. Biggert, Mr. Scott, Mr. Delahunt, and Ms. Jackson Lee for 
your sponsorship of this legislation, but let me say something 
else.
    As I listen to Mr. Scott and I listen to Mr. Issa and some 
others, I was thinking about, how do you address these issues? 
And as, frankly, I haven't practiced law for many years, I 
think there are two things, and I think Mr. Scott hit on it 
very--did a good job of pointing it out.
    You know, the question is, it is not just whether you have 
the laws on the books. The question is, is whether law 
enforcement make those laws a priority to prosecute and whether 
they have the resources to do it.
    Now, Mr. Abercrombie makes a good point. There are some 
loopholes. And we need to fill those loopholes. But we also, 
Mr. Chairman--and just commentary--we need to make sure that 
the U.S. attorney and our attorneys throughout--and his 
assistants throughout the country and our State folks know that 
this is a priority of this Congress.
    Now, I get tired of seeing my constituents after they have 
been defrauded and left with nothing. And the sad part about 
it, as I close, is that, you know, I have often said we have 
one life to live. This is no dress rehearsal, and this is that 
life.
    And it is so sad when I see people like I saw this morning, 
Mr. Chairman, getting up at 5 o'clock in the morning, going out 
there, working their butts off, and now they stand to lose 
their houses, their homes, their savings, and their health 
care.
    And then they see their tax dollars being used in a way 
that is to me fraudulent. And they also see something else 
happening: They also see that it becomes almost impossible for 
them to reclaim their dream and reclaim their hope.
    So I encourage this Committee to do what I know you are 
going to do. And thank you for being so vigilant.
    [The prepared statement of Mr. Cummings follows:]
        Prepared Statement of the Honorable Elijah E. Cummings, 
        a Representative in Congress from the State of Maryland
    Thank you, Chairman Conyers, for inviting me to testify today.
    I commend Chairman Conyers and Ranking Member Smith for their 
tireless leadership of our ongoing efforts to protect consumers and 
prevent fraud, and I also appreciate the hard work of all Judiciary 
committee members.
    I have worked closely with the administration of Governor Martin 
O'Malley in my home state of Maryland to make my constituents aware of 
the consumer protections available to them, and I am pleased to be 
here.
    From the instant the decision was made to inject taxpayer dollars 
into the private capital markets, I have beaten a drum for the rights 
of our nation's ``involuntary investors.''
    From for-profit ``loan modification'' firms in the housing sector 
to corporate bonuses and retention payments on Wall Street, we've seen 
too many examples of our hard-working constituents getting taken 
advantage of at a time when many are truly desperate.
    At the State level, the Maryland General Assembly has passed the 
Maryland Mortgage Fraud Act, explicitly making mortgage fraud a 
specific crime, as well as creating an affirmative obligation for all 
mortgage brokers and lenders to report cases of fraud, theft, or 
forgery.
    More recently, we've all seen the emergence of these so-called 
foreclosure or loan modification consultants.
    These scam artists charge high up-front fees to vulnerable 
consumers to supposedly help them obtain modifications of their loans.
    In reality they are charging hard-working people for information 
that is available to them at no cost. Too often, these efforts result 
in both wasted money and wasted time.
    The bills to be considered by the committee today would provide 
exactly the kind of tools we need to create stronger taxpayer 
protections.
    In the case of AIG, all taxpayers have been victimized. We have 
seen a pattern of less-than-full disclosure of AIG's uses of the TARP 
money.
    First, we found out they were attending conferences at lavish 
resorts.
    Then we found out they were issuing bonuses and retention payments, 
even within the Financial Products division, whose actions brought AIG 
down and created the systemic turmoil that threatens our entire 
economy.
    Mr. Liddy and his team at AIG have not convinced me that these 
bailout funds are always being used in the best interests of the 
taxpayer--and it is simply inacceptable that the taxpayers who provided 
this funding should have any doubts.
    I particularly commend Chairman Conyers, Mr. Smith, Ms. Biggert, 
Mr. Delahunt, and Ms. Jackson Lee for their sponsorship of the Fight 
Fraud Act of 2009.
    Including the Troubled Assets Relief Program in the definition of 
``major fraud against the government'' should help create transparency 
and increase accountability from the recipients of these taxpayer 
funds.
    Whether as a, quote, ``involuntary investor'' or as the holder of 
an underwater mortgage, the American taxpayer shouldn't have to keep 
absorbing these blows.
    The Fight Fraud Act and today's hearing are the counterpunches they 
need. Mr. Chairman, I commend you and the committee again on your 
efforts to root out fraud and abuse.
    Thank you for inviting me today, and with that, I yield back.
                               __________

    Mr. Conyers. Well, we are indebted to all three of you and 
look forward to our continued working together on these bills, 
and laws like this, and how we enforce and supply the 
government with the resources to do what you have suggested.
    I thank you all for your attendance this morning.
    We will now call up our second panel of seven witnesses. 
And we are pleased to welcome the president and CEO of the 
Taxpayers Against Fraud, Jeb White; senior law partner Marcia 
Madsen; another law firm partner, Barry Pollack; the executive 
director and general counsel of the Association of Consumers, 
Ira Rheingold; the New York City commissioner for consumer 
affairs, Jonathan Mintz; the deputy director of the Federal 
Bureau of Investigation, John Pistole; and the acting assistant 
attorney general for the criminal division in the United States 
Department of Justice, Ms. Rita Glavin.
    Ms. Glavin has done some very excellent work. She will be 
our first witness. All the statements will be in the record, so 
we welcome you to begin.

 TESTIMONY OF RITA GLAVIN, ACTING ASSISTANT ATTORNEY GENERAL, 
            CRIMINAL DIVISION, DEPARTMENT OF JUSTICE

    Ms. Glavin. As you all know, the Nation's current economic 
crisis has had devastating effects on mortgage markets, credit 
markets, the banking system, and all of our Nation's citizens.
    And while not all of the current economic ills are the 
result of criminal activity, the financial crisis has laid bare 
criminal activity, such as Ponzi schemes, that may have 
otherwise gone undetected for years.
    The Department of Justice is committed during these 
difficult times to redoubling our efforts to uncover abuses 
involving financial fraud schemes, mortgage lending and 
securitization frauds, foreclosure rescue scams, government 
program fraud, bankruptcy schemes, and securities and 
commodities fraud.
    Where there is evidence to criminal wrongdoing, including 
criminal activity that may have contributed to the current 
economic crisis or any attempt to criminally profit from the 
current crisis, the department will prosecute the wrongdoers, 
seek to put them in jail when appropriate, and work tirelessly 
to recover assets and criminally derived proceeds, and strive 
to make the victims whole.
    Historically, the department has had tremendous success in 
identifying, investigating and prosecuting massive financial 
fraud schemes. Last year, for example, the department obtained 
convictions of four executives, including a former AIG 
executive who engaged in corporate fraud by executing two false 
reinsurance transactions to conceal a $59 million decrease in 
the loss reserves of AIG.
    Similarly, last year, the department secured the conviction 
of five former executives, including the owner and president of 
National Century Financial Enterprises, one of the largest 
health care finance companies in the United States, until its 
2002 bankruptcy, on charges stemming from an investment fraud 
scheme resulting in $2.3 billion in investor losses.
    Last week, the former president of that company was 
sentenced to 30 years in prison, and a co-owner was sentenced 
to 25 years in prison. The defendants were also ordered to pay 
restitution of $2.3 billion and forfeit $1.7 billion.
    In just the last few weeks, the department has secured a 
guilty plea from Bernard Madoff for securities fraud and mail 
fraud violations. And we filed a criminal complaint against 
Laura Pendergest-Holt, the chief investment officer of Stanford 
Financial, alleging that she obstructed an SEC investigation 
into the activities of Stanford Financial.
    The department has approached the current financial problem 
with three primary goals, first, coordination. The department 
has sought to aid in the coordination among law enforcement 
agencies by working with our partner agencies in forming a 
variety of national and regional working groups. The 
coordination is important to share information and share ideas.
    Second, investigations and prosecutions. As always, the 
department focuses on those to investigate financial fraud and 
mortgage fraud. When people go to jail, when people incur stiff 
fines and have to pay restitution, we deter similar conduct by 
others.
    The department has over the last several years aggressively 
prosecuted fraud cases. We have done nationwide sweeps, 
resulting in hundreds of convictions.
    Third, in addition to coordination and investigating, 
prosecuting crimes, we look to fulfill our responsibilities to 
the victims, looking to make them whole, looking to identify 
them, looking to recover assets and provide the restitution to 
the victims.
    In addition to continue our efforts to prosecute financial 
crimes, like Ponzi schemes, mortgage fraud, securities fraud, 
the department knows that we have to ensure that the funds that 
Congress has authorized to rejuvenate our economy are used as 
intended.
    Where these taxpayer funds are used unlawfully and where 
misrepresentations are made in order to get those funds, we are 
committed to looking at the matter, investigating and 
prosecuting wrongdoers where we find them.
    Our past experience, including many prosecutions relating 
to the Hurricane Katrina recovery funds and the funds used as 
part of the Iraq reconstruction efforts, show that we know when 
large investments of taxpayer money go out over a short period 
of time, people will try and exploit the system and criminally 
profit.
    And we are aware of that. We are ready for that. And we are 
already starting to work with our other law enforcement 
agencies, including the SIGTARP, to prepare for what may come 
down the pike.
    So looking forward, the department believes it has the 
tools it needs to continue to vigorously combat financial 
fraud. We support certain legislative steps that could be used 
to close existing gaps that might exist in the law and 
strengthen some of the statutes that we already use to 
prosecute these financial fraud crimes.
    I appreciate the Committee's invitation to be here today, 
and I look forward to your questions.
    [The prepared statement of Ms. Glavin follows:]
                   Prepared Statement of Rita Glavin




                               __________

    Mr. Conyers. Deputy Director John Pistole, Federal Bureau 
of Investigation?

                  TESTIMONY OF JOHN PISTOLE, 
                FEDERAL BUREAU OF INVESTIGATION

    Mr. Pistole. Thank you, Chairman Conyers and Ranking Member 
Smith, Members of the Committee. It is a pleasure to be here 
today.
    I would like to give you just a very brief overview of the 
law enforcement challenges facing us and describe the FBI's 
current efforts to address the growing economic fraud.
    First, in the area of mortgage fraud, our work focuses on 
schemes that rely on industry insiders, of course, those 
appraisers, accountants, mortgage brokers, and other 
professionals who override lender controls designed to prevent 
this type of crime from happening. To state the obvious, we 
have experienced a significant increase in mortgage-fraud-
related cases since 2005.
    And we expect that upward trend to continue. Also, mortgage 
rescue schemes designed to prey on individuals facing the 
dramatic loss of their homes and who are therefore very 
vulnerable are of great concern to us. And we are now beginning 
to see the growth of this crime problem, as well.
    The FBI is also combating other types of economic crime, 
from securities fraud to health care fraud to frauds and 
corruption associated with our country's efforts to rebuild 
Iraq and Afghanistan, as we heard from the prior panel.
    Finally, the numerous Ponzi schemes that we have heard 
about, such as Madoff, and other investment frauds have been 
uncovered, which we are actively pursuing, we are responding in 
a number of specific ways. We have shifted resources and now 
have additional FBI agents and national analysts, as well as 
intelligence analysts, assigned to mortgage fraud and related 
investigations.
    We have another group of agents and analysts working 
corporate fraud and securities fraud matters. We augment our 
efforts with State and local law enforcement officers assigned 
to mortgage fraud task forces and working groups.
    And we have established at our headquarters a national 
mortgage fraud to team to coordinate and prioritize our efforts 
across the country with our partners and to provide tools that 
identify the most egregious fraud perpetrators and work even 
more effectively with our counterparts in law enforcement, 
regulatory, and industry leaders.
    For example, last June, we completed the initial phases of 
what we called Operation Malicious Mortgage, involving the 
arrest of more than 400 offenders nationwide believed to be 
responsible for over $1 billion in estimated losses. This 
initiative has focused on three types of mortgage fraud, that 
of lending, of course, mortgage rescue schemes, and mortgage-
related bankruptcy schemes.
    And we continue our strong efforts within the international 
contract corruption task force in which we, with our other 
Federal partners, address fraud and corruption in U.S.-funded 
Iraq and Afghanistan construction projects.
    In closing, it is clear to us and the FBI and our law 
enforcement partners that more must be done to protect our 
country and our economy from those who tried to enrich 
themselves through illegal financial transactions. We are 
committed to doing so and very grateful for your support.
    Thank you, Mr. Chairman.
    [The prepared statement of Mr. Pistole follows:]
                   Prepared Statement of John Pistole



                               __________
    Mr. Conyers. New York City Commissioner for Consumer 
Affairs Jonathan Mintz, welcome.

   TESTIMONY OF JONATHAN MINTZ, NEW YORK CITY DEPARTMENT OF 
                        CONSUMER AFFAIRS

    Mr. Mintz. Good morning. Thank you, Chairman Conyers, 
Ranking Member Smith, for the opportunity to testify on behalf 
of New York City Mayor Michael Bloomberg.
    Given the urgent nature of these hearings, I will skip the 
extensive background on my department's 40-year history of 
enforcing and litigating against deceptive and misleading 
practices in New York City. And I will also forego the in-depth 
stories about the damage that is inflicted on consumers by 
foreclosure scams.
    My brief testimony will diagnose from an on-the-ground, 
municipal, anti-fraud perspective why these scams are so 
virulent and suggest practical, immediate Federal outreach and 
enforcement interventions that must occur in the coming days 
and weeks.
    A combination of enforcement and education is just what is 
needed to disrupt the tide of foreclosure prevention and loan 
modification scams sweeping across our cities. The numbers are 
alarming: Nearly 5,000 homes in New York City were auctioned 
off last year, and nearly 14,000 homeowners had lis pendens 
filings.
    The national foreclosure crisis has created a formidable 
demand for rescue and refinancing. Unfortunately, a shadow 
industry aimed at profiteering from both the enormity of the 
crisis and the Federal resources is moving aggressively to 
respond to that demand.
    This shadow industry thrives for three reasons all too 
familiar to consumer protection agencies. First, the intense 
demand for loan modifications; second, a captive, vulnerable, 
and often unsophisticated population; and, third, the lack of a 
single, trustworthy and tamperproof source to which people can 
be directed for help.
    Many of the same people who were deceived by the marketing 
tactics used for subprime loans--people with limited experience 
with financial services--are the targets now. Adding fuel to 
this fire is that these easy targets can be precisely 
identified.
    Lis pendens lists are readily available for purchase 
online. Scam artists can access critical information, like 
servicers and payment histories, in order to employ disarming 
familiarity.
    The public hears daily about the Federal Government's 
efforts to help distressed mortgage holders, but information is 
channeled through multiple conduits, from every level of 
government and from nonprofit sector partners. It is this 
diffuse messaging and the multiple doorways which facilitates 
the swindles.
    Loan modifiers pose as messengers from government agencies, 
lenders or services. Advertisements take on official veneer, 
for example, using FHA seals or including legal citations.
    We believe that there are three feasible steps which can 
effectively intervene to protect people in foreclosure and get 
them to the right help.
    While so-called loan modifiers are located throughout the 
country, their targeting and their marketing is local in 
nature. In New York City, the neighborhoods that are most 
dramatically impacted by the foreclosure crisis are papered 
with flyers offering rescue.
    To combat this flood of marketing, the national response 
needs to be clear and simple in messaging, but local in 
delivery. Simplifying the conduit to well-trusted and 
tamperproof 311 or 211 information hotlines is an ideal 
intervening fix.
    More than 60 cities across the U.S., which cover close to 
80 percent of the American population, have these information 
hotlines. These referral systems available 24 hours a day, 7 
days a week, and in dozens and dozens of languages. Local 
governments have invested millions of dollars to popularize 
these free hotlines, and we stand ready to utilize them for the 
present emergency.
    The Federal Government has the unique power to mobilize 
civil leaders and community partners to carry a unified 
message: Don't talk to anyone about helping you avoid 
foreclosure unless you got to them through 311 or 211.
    Now let's talk about strengthening enforcement. We applaud 
the Chairman's proposed Fight Fraud Act and the additional 
resources intended to be directed to Federal law enforcement 
agencies.
    But given the local nature of these scams and the 
accompanying wealth of local information and leads, these 
Federal agencies will be most effective when they are 
meaningfully partnering with local enforcement and consumer 
protection agencies who have inspectors on the ground. We have 
the information; we just need to be able to get it into the 
right hands.
    We propose, therefore, the establishment of a national task 
force, which will coordinate this database and information.
    Finally, we propose a Federal ban on fee-for-service 
mortgage relief advocacy. There is no reason for distressed 
homeowners to pay unqualified, for-profit actors to negotiate 
with their lenders when instead they could work with qualified, 
not-for-profit HUD counselors.
    Just like banning fee-based debt counseling, as we have in 
New York, Congress has the power to enact a simple ban on fee-
for-service foreclosure prevention businesses. Moreover, State 
and local governments must be empowered to enforce such 
legislation.
    Thank you.
    [The prepared statement of Mr. Mintz follows:]
                  Prepared Statement of Jonathan Mintz



                               __________

    Mr. Conyers. Thank you very much.
    We now have a consumer representative, Ira Rheingold.

TESTIMONY OF IRA J. RHEINGOLD, NATIONAL ASSOCIATION OF CONSUMER 
                           ADVOCATES

    Mr. Rheingold. Good morning, Mr. Chairman.
    And thank you, Ranking Member Smith and Members of this 
Committee.
    I thought I would use my time to talk a little bit about my 
background, what I have seen over the course of a dozen years, 
and take a look at how, if we are going to stop fraud in this 
country, who we need to really target when we begin to tackle 
the gigantic problem that we have today in terms of our 
foreclosure crisis and the mortgage fraud that permeates our 
economic system.
    I was a legal services attorney since the mid-1990's 
working on foreclosure issues in Chicago. From the mid-1990's 
through around 2001, I worked in low-and moderate-income 
communities in Chicago and worked with others around the 
country who face the same issues.
    And what we saw in those communities was the mortgage fraud 
that we are seeing today across this whole country, in Atlanta, 
in Boston, in Hampton Roads, in California. And what we saw was 
a mortgage system that was system, a mortgage system that was 
broken that attracted people who were committed to committed 
crime.
    The tin men of the 1950's and 1960's, the home repair scam 
artists of the 1970's and 1980's became mortgage brokers and 
got engaged in the mortgage-lending industry. And what we saw 
in those communities were an enormous loss of wealth.
    In poor communities across this country, we have seen a 
redistribution of wealth that is shocking. Poor communities in 
my city, in other cities have lost enormous wealth, had that 
wealth stolen from them, stolen by Wall Street companies and by 
big mortgage-lenders who built a system that really encouraged 
fraud. And I think that is the important thing that we need to 
look at.
    When we talk about securitization and the complex mess that 
allowed these mortgage things to occur, we need to look at what 
those lenders did. In 1997, 1998, I worked with the Chicago 
attorney general's office when they pursued a company called 
FAMCO. They were joined by a number of attorneys general 
pursuing FAMCO.
    And the biggest funder of FAMCO was Lehman Brothers. So 
when Lehman Brothers failed last year because they were engaged 
in all sorts of nefarious practices, those of us who had been 
working on mortgage fraud since the mid-1990's knew that Lehman 
Brothers was a bad actor.
    In fact, a court in California found them liable for the 
behavior of FAMCO because they knew that mortgage fraud was 
occurring, they encouraged it, they funded it. They did nothing 
about it because profits were great. Profits were great.
    The mortgage lending industry, the investment banking 
industry made money when loans were closed, and they didn't 
care where they came from, they didn't care about who they came 
from.
    As investigators begin to look at the mortgage problem, 
when they start to talk to mortgage brokers and the scam people 
who they will be charging, what they will hear from them--and I 
can promise you they will hear this--is that, ``When we made a 
loan that was a no-doc loan that we knew was permeated with 
fraud, we knew what lender to sell it to. We knew that if we 
went to Countrywide, we knew that if we went to Ameriquest, we 
knew if we want to IndyMac or Option One, they would not 
look.''
    They didn't care, because we had a system that, when those 
mortgage lenders bought those loans, they turned it around, and 
turned them, and chopped them up, and spindled them, and 
mutated them, and turned them and sold them to investors, and 
they knew credit-rating agencies didn't care and weren't going 
to look at it and didn't do due diligence, and then investors 
were the same victims of the fraud that that homeowner was.
    So if we are going to look at fraud, if we are going to 
challenge--if we are actually going to stop the practices that 
have led us to this economic crisis that we sit in today, then 
we need to look carefully at investments. We need to look at 
our banks. We need to look at mortgage lending, look at 
Ameriquest and Countrywide, Angelo Mozilo.
    Instead of honoring somebody like Roland Arnall by making 
him the ambassador to the Netherlands, his company caused more 
harm to our Nation's community than anyone could have imagined. 
We need to look at those companies. We need to look at the 
investment banks, like that--that are still left. But in Bear 
Stearns, in Lehman Brothers, they enabled the fraud that is 
occurring today.
    We talk about--so investment banks. We need to look at the 
credit-rating agencies. Where were there? Did they not see that 
these loans were going to fail? Did they not look at all these 
things and rated these things as AAA and sold them to investors 
as good vehicles, that things were going to--that people's 
money was going to be safe? Did they, in fact, enable the fraud 
by their bad behavior?
    Finally, when we talk about mortgage rescue scams, and that 
is happening every single day--I talk to consumers across this 
country every single day. And they are being inundated by 
claims of people who are going to help them solve their 
foreclosure problem. There are scared and desperate people out 
there.
    We need to go after them, and we need to prosecute those 
people. But we also need to recognize that the reason those 
people are succeeding, the reason why they have such a 
successful business model is because the mortgage servicing 
system is broken.
    No normal human being in this country who has a mortgage 
and wants to get it fixed can find who their lender is, who 
their servicer is, contact that person, and actually get a 
decent loan modification.
    And until we fix the problem of people being able to 
independently handle their matters and solve those foreclosure 
problems by themselves, the scam artists and the mortgage 
rescue schemes are going to be out there. We can't stop it 
until we solve the problem of mortgage servicers not being 
accountable to the American people.
    Thank you.
    [The prepared statement of Mr. Rheingold follows:]
                 Prepared Statement of Ira J. Rheingold
    Mr. Chairman, Ranking Member Smith, and members of the 
Subcommittee, thank you for inviting me to testify before you today 
about the breakdown of the American home mortgage market and how we can 
better protect our nation's homeowners and communities.
    My name is Ira Rheingold, and I have been a public interest 
attorney for my entire adult career. I have worked in some of our 
nation's poorest urban and rural communities and I've witnessed the 
incredible resilience and optimism that mark the great strength of our 
nation's people. I have also seen the incredible fear and despair of 
Americans faced with the loss of their long-term home and its 
devastating impact on their families and on their communities.
    In the mid-1990's through 2001, I lived and worked in Chicago, 
where I ran the Legal Assistance Foundation's Homeownership 
Preservation Project. During those years, I watched (and worked 
against) the unfair and deceptive practices of all the actors in the 
mortgage industry, that slowly, but inexorably stripped away the wealth 
of my city's low and moderate income minority communities. Today, I am 
the Executive Director of the National Association of Consumer 
Advocates (NACA), an organization of attorneys and other advocates who 
represent those very same consumers and communities all across America. 
At NACA, I also manage the Institute for Foreclosure Legal Assistance, 
a project that provides funding and training to non-profit legal 
organizations that help homeowners negotiate alternatives to 
foreclosure. In my current roles, I speak to and assist our nation's 
consumer advocates who, on a daily basis, meet with and represent the 
consumers victimized by predatory and unsound lending practices and see 
the very real-life consequences of an out of control mortgage lending 
marketplace. What I see from them are the same unfair and deceptive 
practices that I personally witnessed in Chicago, except now, those 
behaviors have moved across all of our nation's communities. What I 
hear from their clients is the same fear and despair that I heard all 
too often on the streets of Chicago. At today's hearing, I hope that 
you will hear these voices through me, and that you will begin to see 
what we all need to do to build a rational, robust and well-regulated 
mortgage market that actually serves the needs and demands of consumers 
and communities across our nation.
                              introduction
    To understand what it has been like to be a consumer attempting to 
buy their first home, a homeowner attempting to refinance their home 
for necessary home repairs or to help pay for their children's 
education or to lower their payment so they could remain in their life-
long home on a fixed income, we must first understand how the mortgage 
market has been working. The mortgage market of the late 1990s and 
early 21st century, in no way resembled what most of us thought we 
understood about buying a home or getting a loan. I have talked to 
literally thousands of consumers, who, until recently, believed (or 
were led to believe) that the mortgage entity that originated their 
loan, would only profit when they timely made their monthly mortgage 
payment. While this may have been the case when our parents or even our 
grandparents bought their homes, this has not been the truth for over 
the past dozen years. Instead, because of the growth of securitization 
as the tool to fund both prime and subprime mortgages, with all its 
confusing layers, multiple actors and often perverse incentives, the 
nature of the consumer-mortgage originator relationship (unbeknownst to 
the consumer) had fundamentally changed. These changed relationships 
and backwards incentives have led us to the precipice that we stand at 
today.
                    securitization and the consumer
    For my purpose today, I'm going to keep this very simple.\1\ At its 
most basic level, securitization is a process, which involves the 
pooling and repackaging of cash-flow producing financial assets into 
securities that are then sold to investors. As securitization grew to 
be the dominant way that mortgage loans were funded, the role and 
purpose of mortgage originators (and all the other actors in the 
mortgage market) fundamentally changed. No longer were mortgage 
originators, ``lenders'' who expected (or really cared) about mortgage 
repayments. Instead, these originators became manufacturers of a 
commodity, the American mortgage borrower. This commodity was then sold 
to the capital markets, which in turn, chopped, spindled and mutated 
this new commodity into something that could be purchased by investors 
from around the world.
---------------------------------------------------------------------------
    \1\ For a much greater detailed discussion, please see Peterson, 
Christopher Lewis, ``Predatory Structured Finance.'' Cardozo Law 
Review, Vol. 28, No. 5, 2007
---------------------------------------------------------------------------
    While advocates of securitization have argued that the process 
produced additional capital and greater access to homeownership for 
some consumers, they fail to recognize the fundamental shift and 
potential dangers it created in the consumer marketplace. No longer was 
the borrower's best interest (or even their ability to repay the loan) 
part of the mortgage transaction calculation. Instead, the real 
transaction was between the mortgage originator and the investment 
bank, which not only set the standards for the borrower/product they 
wanted to buy (and then turn around and sell), but also provided the 
money for the originators' loans.
    Under these set of circumstances, what American consumers needed 
was the vigorous enforcement of existing consumer protections as well a 
new set of consumer protections to correspond with the very different 
mortgage world that had now been created. Unfortunately, what the 
federal government gave us was the exact opposite, not only diminishing 
its regulation and enforcement of the mortgage marketplace, but 
providing interference and protection (under the guise of preemption) 
for mortgage market players when states, recognizing the fundamental 
flaws in the system, attempted to protect their own citizens.
      the mortgage market, unfairness, deception and the consumer
    Understanding what originators and all of the actors in the 
mortgage process were attempting to do (creating commodities to sell) 
when they made a home loan helps us understand all the unfair and 
deceptive practices that have flourished in the mortgage marketplace 
over the last decade. I'd like to talk about some of those practices 
now, and explain why they were not caused by a few rogue actors, but 
were instead a product of the fundamentally flawed marketplace that 
securitization created and the federal government passively permitted 
to flourish.
A. The Predatory Pitch
    As the demand for product to sell to Wall Street investment banks 
grew (ultimately exponentially), the pitch to vulnerable homeowners 
(and prospective homeowners) became more targeted and more predatory. 
Armed with financial and personal data and carefully conducted 
research, mortgage brokers and lenders (and their ``bird dogs'') used 
TV and radio advertising, mailings, telephone calls, and even home 
visits to reel in consumers who otherwise had no real reason to get a 
new home mortgage. With promises too good to be true (``refinance your 
home, fix your roof and lower your monthly payment'') consumers were 
later bait and switched to loans far more expensive than they thought 
they were promised. Because the mortgage ``originators'' received their 
full compensation when they manufactured the ``product/borrower'' to 
sell onward and upward, there was little concern whether the loan was 
best for the consumer or even affordable. As many of us knew, and most 
of us have now learned, many of those loans were completely 
unsustainable.
B. The Over-Inflated Appraisal
    In a rational world, a consumer would not want to pay (or borrow) 
more for a home than what it was worth. In the securitization created 
``bizarro'' mortgage world, an over-inflated house made perfect sense 
to the parties involved in the transaction (except for the unsuspecting 
consumer, of course, and maybe the ultimate investors left holding the 
bag). Let's look at the parties to the transaction. We have the 
mortgage originator (the broker or the lender or sometimes both) whose 
incentive is quite obvious. Simply put, the greater the house price, 
the larger the loan, the greater the fee they will receive from the 
transaction (the same can be said for the investment bank). Sometimes 
the incentives were a little more complicated. Take for instance a 
homeowner whose existing mortgage is already 100% of the actual value 
of the home. If the real house value was used, no loan could be made, 
no product could be created. So the house value was increased to meet 
the loan purchasing parameters (the underwriting guidelines) set by the 
investment bank and the loan gets made and everyone is happy (including 
the allegedly ``unknowing'' investment bank who had another product to 
slice and dice and sell to someone else).
    As for the appraiser who creates the fraudulent value for the home, 
we've seen time and again why they go along with this fraud. Simply, if 
they actually want to stay in business and continuing doing appraisals, 
they'll create the value the mortgage originator wants. What we have 
left, is a consumer who has a mortgage that is too often worth more 
than the real value of their home.
C. Yield Spread Premiums and Prepayment Penalties
    Unfortunately (for me), I have been around long enough to hear 
multiple and ever-shifting explanations as to why yield-spread premiums 
(YSPs) are an acceptable practice and why they are ``good'' for 
consumers. I can safely state, that none of those arguments are true in 
the mortgage marketplace that actually exists in our country. I do 
however, fully understand why they work for every mortgage market actor 
except, again--of course--for the consumer.
    Here's how it works. Mortgage brokers get paid more if they produce 
mortgages with an interest rate higher than what a borrower qualifies 
for (that, in short is a YSP). Unless a mortgage broker actually lives 
up too their off-stated (but never written) commitment to serve in the 
best interest of their consumer client, their incentive--a more 
expensive loan means a bigger paycheck--is clear. This perverse 
incentive system also plays out with the mortgage lender and investment 
bank (irrespective of a borrower's ability to pay) because they too 
have a loan with a bigger interest rate to sell to investors.
    To make matters worse, almost any loan with a YSP is sure to have a 
prepayment penalty. In English, a prepayment penalty is a charge to a 
consumer who repays their loan ``too soon,'' typically during the first 
few years of the loan's existence. What makes this product so cynical, 
and so closely intertwined with a YSP, is that the very existence of 
the YSP means that the consumer has an interest rate that is higher 
than they actually qualify for. Therefore, if the consumer acts 
rationally and shops for a lower interest and enters into a new 
mortgage, they will be punished with a steep prepayment penalty.
    In all my years talking, interviewing, and representing consumers, 
I have yet to meet that one consumer who actually understood that they 
were charged a YSP or that the YSP led to a higher interest rate than 
they were otherwise qualified for. I simply cannot imagine how this 
practice is not deceptive or just plain unfair. Yet none of our 
nation's federal regulators have ever really done anything about it 
(except to find ways to allow its widespread use).
D. The Disappearance of Escrow Accounts
    Because the borrower has become the product to be created and sold, 
mortgage originators have become experts at getting borrowers to take 
out loans that make little or no economic sense. A classic and 
pervasive practice in the mortgage market is the ``promise'' that a new 
loan will allow the borrower to pay a lower monthly mortgage payment. 
What the borrower is not told is that their new payment does not 
include their taxes and insurance (for escrow), so that their lower 
payment really is just a mathematical fiction (otherwise known as a 
lie). While the Federal Reserve now finally appears ready to take some 
action on this practice, it is ridiculous that this blatantly unfair 
and deceptive practice (which had been standard operating practice in 
the mortgage marketplace for over a decade), had never been outlawed or 
prosecuted by federal regulators.
E. Reckless Underwriting and the Rise of Community Endangering Loan 
        Products
    In place of an efficient market that provides real consumer choice 
and rewards consumers for smart credit decisions and rational 
aspirations, we have seen, in the past few years, a mortgage market 
that has recklessly created and sold ridiculously risky mortgage 
products that have excessively benefited all of the market players at 
the expense of the American consumer and our nation's communities. In a 
rational marketplace these loans made no sense. Looking at them however 
through the lens of our fundamentally flawed and unregulated mortgage 
marketplace, they unfortunately made perfect sense (at least at the 
time they were originated).
    In order to meet the product demand of voracious Wall Street 
investors, originators ignored basic, common-sense underwriting 
principles in order to boost their loan volume. No-doc or ``stated-
income'' loans were great because loan originators made more money (it 
was less work and they could charge borrowers a higher interest rate) 
and they fed the beast that wanted high-risk products that would 
produce a higher return for investors. Underwriting adjustable rate 
mortgages only at the initial interest rate, without considering how 
homeowners would be able to pay their loans once the payment adjusted 
upward, was also quite profitable for mortgage originators and the 
investment banks that were fed by them. These fundamentally 
unsustainable loan products, in all their derivations (including 2-28s 
and option ARMs) were destined for failure and we are all now living 
with the consequences.
                               conclusion
    The present foreclosure tsunami didn't have to happen. Many of us 
saw the current disaster coming, but our voices were ignored. Federal 
regulators and Congress could have chosen to protect consumers, but 
instead it sat on the sidelines as our mortgage market came to a 
predictable crash. My only hope is that we have all learned the right 
lessons from this current and ongoing crisis, and we move together to 
build a well-regulated mortgage market that meets the needs of all our 
nation's homeowners.
                               __________

    Mr. Conyers. Attorney Barry Pollack is a lead official in 
the National Association of Criminal Defense Lawyers, works on 
white-collar crime issues.
    Welcome.

TESTIMONY OF BARRY J. POLLACK, NATIONAL ASSOCIATION OF CRIMINAL 
                        DEFENSE LAWYERS

    Mr. Pollack. Thank you, Mr. Chairman. And thank you for 
inviting me to testify on behalf of the National Association of 
Criminal Defense Lawyers on the important issues before the 
Committee today.
    NACDL is a professional bar association founded in 1958. It 
has 12,500 direct members and 80 State, local and international 
affiliate organizations with 35,000 members, including private 
criminal defense lawyers, public defenders, active-duty U.S. 
military defense counsel, law professors, and judges committing 
to preserving fairness within the American criminal justice 
system.
    As this Committee considers the various pieces of 
legislation before it, we ask it to consider the following. 
There are presently over 4,000 offenses that carry criminal 
penalties in the United States code. In addition, there are 
literally tens of thousands, if not hundreds of thousands, of 
regulations, Federal regulations that can be enforced 
criminally.
    The Federal arsenal to stop and punish financial fraud in 
every permutation already exists. Federal criminal laws that 
can be used to address criminal conduct in the financial and 
housing markets include among many others mail fraud, wire 
fraud, major fraud, securities fraud, bank fraud, and 
conspiracy to defraud.
    Bearing these facts in mind, NACDL opposes a knee-jerk 
response to the present financial crisis of creating more and 
more duplicative Federal criminal laws.
    Mr. Chairman, while the National Association of Criminal 
Defense Lawyers appreciates this Committee's efforts to make 
sure that our membership is fully and gainfully employed, as 
Ms. Glavin's comments have ably demonstrated, she already has 
the tools to do just that and has been prosecuting vigorously 
and meting out very stiff sentences to white-collar criminal 
offenders.
    Federal criminal laws are rightly reserved for egregious, 
intentional wrongdoing that falls well outside the mainstream 
of ordinary business conduct. If large members of honest 
businesspersons took advantage of an unregulated environment in 
making risky and ill-advised, but not illegal decisions, they 
should not now be treated as criminals.
    For those who went beyond that and engaged in intentional 
fraudulent conduct, there are ample criminal laws on the books 
already that will allow for them to be prosecuted, as they 
should be.
    Accordingly, NACDL does not oppose the various measures to 
fund the hiring of additional prosecutors, FBI agents, and 
other law enforcement personnel, many of whom have been pulled 
away to investigate and prosecute national security cases, to 
investigate and, where appropriate, prosecute white-collar 
criminal offenses.
    However, Congress must understand it cannot fund half of 
the equation. Current criminal forfeiture statutes allow for 
assets to be restrained from criminal defendants upon 
indictment. As a result, increasing numbers of defendants in 
white-collar cases cannot pay for their own defense.
    The defense in this case is paid for by taxpayers. This 
happens either through public defenders' offices or through 
court appointments under the Criminal Justice Act.
    Federal public defender offices are already overburdened, 
and many lack the resources and the expertise to defend complex 
white-collar criminal cases. If we are to expand such 
prosecutions, we must not only fund their investigation and 
prosecution, but we must also adequately fund the defense of 
these cases.
    Accordingly, if additional funding is to be included in the 
new legislation, NACDL applauds the Financial Crimes Resources 
Act as a provision of funding not just for the investigation 
and prosecution of these offenses, but also for the defense.
    Mr. Scott, I note the $50 million to U.S. attorneys' 
offices, the $100 million to the FBI, and $20 million to 
defense function. While we applaud the effort to fund the 
defense function, we believe that that more than 7-to-1 
disparity between two prosecutorial agencies alone is still out 
of balance.
    And as my time is limited, I would like to refer to my 
written statement with respect to NACDL's position regarding 
each of the various unnecessary measures presently contemplated 
to create new Federal statutes, such as mortgage lending fraud, 
derivatives fraud, and TARP fraud, to address conduct that can 
easily be prosecuted under existing law.
    I would like to speak, however, on what we believe is the 
proposed ill-advised effort to expand the reach of the money 
laundering statute and effectively reverse the recent Supreme 
Court decision in the Santos case.
    In that case, the Supreme Court held that the crime of 
money laundering is confined to transactions and the proceeds 
of unlawful criminal activity that is engaging in transactions 
involving illegal criminal profits. That decision is 
appropriate.
    The proposed legislative change would frequently, as it 
would have in the Santos case itself, provide an enhanced 
penalty based solely on the underlying conduct that is already 
unlawful. In essence, it allows the very same conduct to be 
punished twice, first as the underlying crime, and then again 
and more severely as money laundering.
    Thank you again, Mr. Chairman, for allowing NACDL the 
opportunity to be heard on these very important issues.
    [The prepared statement of Mr. Pollack follows:]
                 Prepared Statement of Barry J. Pollack



                               __________

    Mr. Conyers. Attorney Marcia Madsen is with the Institute 
for Legal Reform, which is an affiliate of the United States 
Chamber of Commerce.

   TESTIMONY OF MARCIA G. MADSEN, INSTITUTE OF LEGAL REFORM, 
                      CHAMBER OF COMMERCE

    Ms. Madsen. Good morning, Mr. Chairman, Ranking Member 
Smith, Members of the Committee.
    My name is Marcia Madsen. I am a partner in Mayer Brown, 
and I am here today representing the United States Chamber of 
Commerce and its Institute for Legal Reform.
    I noticed you referred to me as a senior partner, Mr. 
Chairman. I have--ladies always wonder when someone uses that 
expression--but since 1985, I have practiced in the area of 
public contract litigation and, among other things, have 
defended companies and individuals in connection with the False 
Claims Act, which is the subject of my testimony today, and 
working in the public procurement area.
    So on behalf of the Chamber, I am really here today to talk 
about H.R. 1788, the legislation that was introduced yesterday 
to amend the civil False Claims Act.
    As an initial matter, I want to emphasize that the Chamber 
supports the Department of Justice and the agency inspector 
general in their efforts and role to identify and eliminate 
fraud involving taxpayer funds. The Chamber recognizes that the 
False Claims Act is an important tool to fight fraud in Federal 
contracts and Federal programs.
    The $21.6 billion recovered since 1986 evidences that the 
statute is working, particularly when it is deployed by the 
government. The Chamber believes very strongly the proposed 
amendments to the statute, which largely are directed at 
encouraging qui tam plaintiffs to file and maintain meritless 
actions are unnecessary. Further, those amendments may actually 
disrupt the government's efforts to pursue fraud, waste and 
abuse in Federal contracts and programs and unjustly--
plaintiffs who have--who do not deserve to be rewarded.
    Since this Committee last looked at the False Claims Act 
amendments last summer, there have been some pretty dramatic 
changes in the government's investigative and oversight 
mechanisms and resources. There are just a couple of points 
that I would like to summarize from my written testimony.
    The first is, I would like to draw in particular the 
Committee's attention to the new mandatory disclosure rule that 
became effective in December 2008 at the behest of the 
Department of Justice. This new regulation, which was described 
by the government itself as a sea change, requires Federal 
contractors to disclose potential violations of the False 
Claims Act, certain criminal laws related to procurement, and 
significant overpayment.
    While this rule was initially exhausted, an amendment to 
the Federal Acquisition Regulation, which I will undoubtedly 
refer to as the FAR here and confuse everyone, that amendment 
became applicable to other programs very quickly, as it is sort 
of become--mandatory disclosure has kind of become the latest 
thing in government programs.
    It was quickly picked up by the implementing guidance in 
the American Recovery and Reinvestment Act for grants and 
assistance agreements and in the TARP legislation for financial 
agreements under the TARP, as well as contracts.
    But the point I want to emphasize to the Committee today 
about this regulation is that, because the government's 
investigators have direct access to obtain information from 
contractors and grantees, there is really no need to enact 
changes to the False Claims Act to further encourage relaters.
    Just in summary, the rule has two main features. First, 
contractors with larger contracts as required to have a code of 
business ethics and conduct, a government-approved internal 
control system, and that control system has to be designed to 
detect improper conduct.
    The system is required to include timely, mandatory 
disclosure whenever the contractor has credible evidence of a 
potential violation of the False Claims Act.
    Subcontractors also are required to have such a program and 
to make disclosures. And I heard the comments and the questions 
of the Members of the Committee today about concerns about 
subcontractors. They are covered by the rule.
    Importantly, contractors and subcontractors must provide 
full cooperation with government investigators, which includes 
providing access to employees who have information about the 
potential violation.
    The second point I would like to note is that a contractor 
of any size is subject to debarment for a knowing failure to 
timely disclose credible evidence of a violation of the False 
Claims Act under designated criminal laws or significant 
overpayment.
    This obligation does not end until 3 years after final 
payment, and it requires a look-back at the time of final 
payment, even if contract performance has long been completed.
    When you consider that only 2 percent of False Claims Act 
recoveries come from--it is pretty obvious, I think, that the 
government investigators' access under the mandatory disclosure 
rule is going to be a more effective means for determining 
whether there is a meritorious case or a violation at an 
earlier stage.
    And, Mr. Chairman, you commented earlier, what is the best 
way to get at fraud? And I would submit to you that the 
mandatory disclosure rule is a better solution than using 
third-party relaters.
    I would like to comment just briefly about some of the 
problems that arise in the legislation--really, in the proposed 
legislation, as a result of the advent of the mandatory 
disclosure rule.
    The first relates to the public disclosure provision. With 
the change to the amendment proposed in the bill, a relater 
would actually be able to proceed with an action involving the 
same transaction or facts that have already been mandatorily 
disclosed.
    Just a couple of examples. Because of the exclusivity 
standard in the bill, a relater who has any additional 
information, no matter how small, would be able to proceed, 
because it would be new information.
    Also, the definition of public is not clear, and it is not 
clear with that definition whether a mandatory disclosure would 
qualify as an audit or an investigation sufficient to have 
these actions dismissed.
    So unless this language is revised, it is possible that a 
relater would be able to obtain a recovery, even though the 
proper government authorities had the information and were 
pursuing it.
    A similar problem exists with respect to the bill's 9(b) 
provision. If a relater is subject to a lower pleading 
standard, the relater will be allowed to proceed to obtain 
discovery and potentially to obtain a mandatory--or is able to 
obtain a recovery even though the mandatory disclosure has 
already been made to the government and the government already 
had the information.
    We have the same concern about sharing information under 
civil investigative demands.
    The second point I just wanted to make very briefly--and it 
is made at length in my written testimony--is that the 
government in--really, in the last few months has tremendous 
new assets and resources and capabilities to pursue fraud.
    The recovery act created a new Accountability and 
Transparency Board, the ability to use the I.G. powers, and 
additional authority to compel documents and to have hearings 
and compel testimony. It also authorized the Recovery 
Independent Advisory Panel, which also can take evidence and 
hold hearings.
    The recovery act added new powers for the I.G.s and the GAO 
to investigate and to subpoena testimony from recipients of 
recovery act funds. And that is new authority for them.
    The recovery act contains a separate whistleblower 
provision authorizing damages and a right of action in Federal 
court. And it contains a lot of money for the inspector 
general, over $220 million for new resources.
    The TARP also gets a special I.G., extensive audit rights, 
extensive supervision by the GAO, and there is mandatory 
disclosure for TARP.
    So, in sum, I would just like to note that there really is 
no need to give relaters and their lawyers more tools to pursue 
fraud. When you think about the best way, the best way here is 
if the government steps in to the get the information and where 
is the value--value for the government is to use its resources 
and the information, rather than basically outsourcing that 
function to the relaters.
    I would be happy to respond to any questions.
    [The prepared statement of Ms. Madsen follows:]
                 Prepared Statement of Marcia G. Madsen



                               __________

    Mr. Conyers. Jeb White, president of a couple of 
organizations that deal with the public interests and in 
dedicating their attention to combating fraud through promotion 
of the False Claims Act and other provisions.

                TESTIMONY OF JOSEPH E.B. WHITE, 
                    TAXPAYERS AGAINST FRAUD

    Mr. White. Chairman Conyers, Ranking Member Smith, and 
Members of the Committee, thank you for inviting me to speak 
here today. I am here on behalf of Taxpayers Against Fraud to 
voice our strong support for this commonsense law enforcement 
legislation, the False Claims Act corrections act of 2009.
    Since 1986, over $20 billion stolen dollars have been 
recovered under the False Claims Act, which includes over $12 
billion from qui tam whistleblowers' suits. And it is now 
widely considered the government's primary fraud-fighting 
weapon.
    However, over the course of time, liability loopholes have 
been ripped into the act, and judge-created procedural 
roadblocks have emerged, greatly undermining the Justice 
Department's effort and permitting fraudsters to steal our tax 
dollars with impunity.
    Late last congressional term, you sought to correct these 
problems by passing this very legislation. Unfortunately, time 
was short, and the bill ran out of time. However, with our 
country in the midst of an economic crisis and nearly $1 
trillion stimulus dollars now vulnerable to fraud, it is now 
more important than ever to fix the problems that are holding 
back the False Claims Act.
    We fully support every provision of this bill, but I wanted 
to highlight four problems that this legislation would fix. 
Number one, the bill clarifies that the act protects government 
money disbursed by government contractors. This clarification 
is badly needed to ensure that the act remains fully effective 
in an era in which so many government functions are outsourced 
to government contractors.
    As we all know, we now rely largely on this outsourced 
government to award and oversee contracts, to disburse 
government funds, and to detect fraud in our government 
contracting system.
    However, after a recent Supreme Court decision, false 
claims submitted to this outsourced government are now largely 
out of the reach of the False Claims Act. In this decision, the 
court read the act to apply only to false claims that are 
potentially reviewable by ``the government itself.''
    This bill closes that loophole by focusing not on who 
actually inks the check, but on the nature of the funding.
    Number two, the bill attaches liability when someone 
wrongfully retains an overpayment of government funds. This 
``finder's keepers'' scheme is perhaps the most pervasive fraud 
attacking our American tax dollar, but the act remarkably does 
not reach these funds.
    For example, the act currently does not apply when health 
care providers identify overpayment brought to them through 
mistaken billing and then makes the deliberate decision to keep 
those funds. This blatant dishonesty would run afoul to 
criminal law and, as Ms. Madsen said, would run afoul of the 
mandatory disclosure rule, but it would not violate the Federal 
False Claims Act.
    Number three, the bill clarifies that a qui tam 
whistleblower with detailed knowledge of fraudulent schemes may 
proceed with his case, even if he can't get his hands on the 
actual invoices. This provision, which explicitly defines how 
Federal Rule of Civil Procedure 9(b) applies to qui tam suits. 
It is needed to remove the judicial confusion that is currently 
undermining the country's fraud-fighting efforts.
    The simple fact is that our Justice Department needs 
whistleblowers to provide the inside information about 
fraudulent schemes. They already have the invoices. They can 
access those through their files. They need the whistleblowers 
to point out the fraudulent schemes.
    This is precisely why the Justice Department has repeatedly 
and consistently argued for the very standard codified in 
today's bill.
    Number four, the bill vests solely with the government the 
power to dismiss cases that are based on public allegations. 
The act's so-called public disclosure bar is designed 
specifically to protect the government's interest from qui tam 
pleadings that merely copy public allegations of fraud.
    Other provisions in the act are designed to protect the 
defendant's interests. But when it comes to the public 
disclosure bar, it is the government who should properly assess 
whether or not the whistleblower's pleading are parasitic on 
what is out in the public domain.
    Yet, time and time again, defendants have improperly filed 
these motions under this provision and, time and time again, 
have delayed adjudication on the merit to wear down their 
opposition.
    In many cases in which the defendants have filed these 
motions, there is no government investigation involving the 
public disclosure. If the government was concerned about it, 
they would and can and do file motions to dismiss these cases.
    The opponents of this corrective legislation argue that the 
False Claims Act is working ``well enough.'' They argue that we 
don't need the inside information of fraud provided by 
whistleblowers. They argue that the country should somehow be 
satisfied with recovering a portion of its stolen funds.
    They offer up the recent regulatory life preserver as 
somehow plugging the gaping liability loopholes imparting upon 
the fraud-fighting vessel of the False Claims Act. The problem, 
of course, is that the False Claims Act relies upon inside 
information to uncover fraud.
    I encourage you to recognize the realities of fraud, the 
realities of fraud prosecution, detection, and support this 
legislation to rectify the deficiencies of this act. For when 
it comes to fighting fraud, particularly in today's economic 
environment, it is not a matter about settling for well enough.
    Thank you so much.
    [The prepared statement of Mr. White follows:]
                Prepared Statement of Joseph E.B. White



                               __________
    Mr. Conyers. Crime Subcommittee Chairman Bobby Scott?
    Mr. Scott. Thank you. Thank you, Mr. Chairman.
    Mr. Pistole, could you remind me how many agents that you 
had on board during the savings and loan crisis?
    Mr. Pistole. Yes, Congressman. We had approximately 1,000 
FBI agents who were dedicated to the savings and loan crisis.
    Mr. Scott. And is this crisis significantly more 
complicated than the savings and loan crisis?
    Mr. Pistole. Absolutely.
    Mr. Scott. I remember the savings and loan crisis, a lot of 
the crisis was caused by just the fluctuation in interest rates 
or the long-term rates just put a lot of banks out of business, 
and it wasn't the fraud and the schemes.
    Is more crime involved in these cases today than back then?
    Mr. Pistole. We believe so. And, obviously, we are still 
assessing it on a case-by-case basis, in terms of the dollar 
losses. But based on the suspicious activity reports that have 
been filed and our ongoing investigations, yes, the losses here 
appear to be much more significant than in the S&L crisis.
    Mr. Scott. And you had 1,000 then. How many do you have 
dedicated to the problem today?
    Mr. Pistole. We have approximately 250 FBI agents dedicated 
to the mortgage fraud issue.
    Mr. Scott. Okay. We have heard discussions of some of these 
loans and people looking the other way. If somebody packages up 
a bunch of worthless documents and passes them off as 
mortgages--worthy securities, where are the crimes?
    Mr. Pistole. Well, clearly, there could be false statements 
that are made. There could be wire fraud, mail fraud, as you 
mentioned earlier, in the securitization of those--the 
packaging of those mortgages and other financial instruments.
    So there is any number of fraud that may have been 
committed just depending on the actual fact of the 
investigation.
    Mr. Scott. Ms. Glavin, you indicated that there are 
hundreds of convictions. Can you give us an idea of the 
disposition of some of those cases, including the fines and 
forfeitures that you were able to get?
    Ms. Glavin. There have been hundreds of convictions since--
between 2004 up until now for the many nationwide sweeps that 
the Justice Department has been involved in, in mortgage fraud 
cases.
    I can get you, you know, some more specifics on the exact 
sentences, but what I can say is, during the hundreds of people 
that have been arrested, convicted and sentenced, people have 
gotten jail time. There is restitution that is required to be 
ordered by statute in those cases, and I would refer you also 
to some of the specific examples I gave in my testimony on some 
of the sentences and the fines.
    Mr. Scott. Forfeitures?
    Ms. Glavin. Forfeitures, as well, yes.
    Mr. Scott. If billions and trillions of dollars have been 
lost in this mess, then trillions--billions and trillions have 
been made by somebody. Are we anywhere close to recovering a 
lot of what has been stolen?
    Ms. Glavin. I probably should separate out the two 
concepts. Millions of dollars can be lost, but, speaking from 
the perspective of the criminal division, we can't necessarily 
go after that unless it is related to a crime.
    So to the extent there is a crime involved, the criminal 
division and U.S. attorney's office will go after it, prosecute 
it, and we will seek restitution and forfeiture to the extent 
we can.
    Separately, if there is not a crime and money lost, you can 
certainly look at that from the department's civil division and 
see what civil enforcement remedies are available and if it 
meets the statute.
    But there is no question that the department will look, 
when appropriate, and seek restitution, forfeiture, and action, 
whether it be civil or criminal, to retain lost funding.
    Mr. Scott. Are you using RICO and conspiracy statutes?
    Ms. Glavin. I don't want to address this specifically using 
the RICO and conspiracy statutes unless they are appropriate 
and unless--I don't want to get out of--speak hypothetically, 
but we used what tools we have statutorily in fraud cases to go 
after--to go after these crimes.
    Mr. Scott. Do you know whether or not your forfeitures are 
more or less than the cost of the prosecutions?
    Ms. Glavin. I don't know that. I know, though, that each 
year--forfeitures in the last couple of years totaled hundreds 
of millions of dollars. I can't make an assessment based on 
what the cost would be of prosecuting a comparison to 
forfeitures.
    Mr. Scott. Iraqi contractor fraud, do we have a problem 
with jurisdiction?
    Ms. Glavin. We have been able to prosecute procurement 
fraud with respect to reconstruction in Iraq and Afghanistan. 
We have a procurement fraud task force that has been focusing 
on that. And there have been dozens of convictions as a result 
of our efforts.
    So I know that we are able to have jurisdiction in a number 
of instances, and we have had successful prosecutions. As to 
the specifics of whether there have been problems encountered 
on jurisdiction, I am happy to speak with my people about that 
and get back to you. But I know we have had success in that 
area.
    Mr. Conyers. Lamar Smith?
    Mr. Smith. Thank you, Mr. Chairman.
    Mr. Chairman, my first question is to Mr. Pistole. This 
follows up just a little bit on the first question that Mr. 
Scott asked you, about the number of agents, but I want to 
bring it current. Would you go into a little bit more detail 
about the FBI's agents that combat mortgage fraud, number of 
agents assigned to mortgage fraud, number of task forces that 
exist that combat it, as well, maybe something about law, local 
and State law enforcement efforts, and then any other 
initiatives that the FBI is taking?
    Mr. Pistole. Gladly, Congressman Smith. Thank you.
    Going from 2005, just to put it in context, we had about 
720 mortgage fraud investigations. We now have over 2,000 
investigations. And then in fiscal year 2007, we had about 120 
agents working. And as you have heard, we have more than 
doubled that to 250.
    We also have approximately 50 financial analysts, 
intelligence analysts who help work--just from the FBI--who 
work on this. And then there is an additional approximately 250 
State and local and other Federal agents and officers who work 
on the mortgage fraud matter.
    So that is a broad brush on it. We also have people working 
securities fraud and in corporate fraud.
    But in terms of the working groups and task forces, we have 
18 regional mortgage fraud task forces and 47 working groups, 
so a total of 65 regional task forces or working groups 
addressed to mortgage fraud. The other corporate and securities 
fraud address things such as the Ponzi schemes, such as Madoff, 
and then other issues. But that is just a brief overview on the 
mortgage fraud.
    Mr. Smith. Thank you, Mr. Pistole.
    Ms. Glavin, if I could ask you in regard to Federal 
criminal laws whether there are any gaps or whether there are 
any changes that you would like for us to make that will 
enhance the prosecution of mortgage fraud?
    Ms. Glavin. Yes, Congressman, the department has already 
expressed its support for the bill--the Fraud Enforcement and 
Recovery Act, which just passed--came out of Senate Judiciary 
Committee, and it contains what we would call enhancements to 
some of our fraud statutes. Some of the enhancements in those 
statutes mirror a piece of legislation I know is in draft form 
here in the House, the Fight Fraud Act.
    Those enhancements would be that we would support expanding 
the definition of financial institutions----
    Mr. Smith. Okay.
    Ms. Glavin [continuing]. In fraud crimes, such that they 
would include mortgage-lending businesses. That would make it 
easier for us to bring prosecutions.
    In addition, we would propose amending the major fraud 
statute, 18 USC 1031, it is focused on procurement fraud right 
now. And we would ask that it be amended such that it would 
include funds relating to TARP or economic stimulus.
    So those are some of the revision that we would support.
    Mr. Smith. Those are good suggestions. Thank you. And I 
hope we take them under advisement, as well.
    Ms. Madsen, let direct my next and final question to you. 
And let me mention some statistics in regard to the False 
Claims Act and ask you to respond.
    More than 90 percent of the amounts recovered in the false 
claims cases brought by private plaintiffs have come from the 
20 percent of the cases in which the Federal Government has 
intervened. That means that only 10 percent of recoveries have 
come from the 80 percent of the cases where the Justice 
Department has declined to pursue them.
    Could these numbers be evidence of the lack of merit to the 
majority of the False Claims Act cases brought by private 
plaintiffs?
    Ms. Madsen. Congressman Smith, I think there is probably 
some truth in that statement. I don't know that it is an 
absolute truth.
    Mr. Smith. I am just looking at it for a possibility here.
    Ms. Madsen. Possibility. I think--I mean, we know that 
the----
    Mr. Smith. Absolute truths are hard to find.
    Ms. Madsen. Right, right, especially--never mind. 
[Laughter.]
    The Justice Department reviews qui tam complaints very 
carefully, investigates them, and makes very thoughtful 
decisions typically about whether to intervene or not 
intervene. So I think you can safely say that, when the Justice 
Department decides not to intervene, they have made a 
conclusion that the case isn't probably worth--doesn't have the 
merit to be worth their time.
    Mr. Smith. And it seems that that is the case most of the 
time, is the point.
    Ms. Madsen. My friend, Mr. White, here would say, but, you 
know, in those additional cases, the relater should be allowed 
to proceed because there may be another in there somewhere and 
the Justice Department might get back in and there might be a 
recovery.
    I think the point here really is that, is that the most 
efficient really way to do this? Is that the right way to 
expend funds, particularly now that we have this mandatory 
disclosure rule, where the information is available to the 
government at an early stage to make its decisions about 
whether to proceed? Is that really the most efficient way to 
spend the money?
    Mr. Smith. Okay. Thank you, Ms. Madsen.
    I yield back, Mr. Chairman.
    Mr. Conyers. Hank Johnson?
    Mr. Johnson. Thank you, Mr. Chairman.
    You know, we live in a country where most of us are proud 
of the system that we live under. And we make certain 
assumptions about our system. And one the aspects of the 
criminal justice system is that, you know, it is an adversary 
system, both civilly and criminally. You have two sides. You 
have a judge to rule on the law. You have a jury on occasion 
or--and you have a right to a jury trial.
    And citizens, or peers, make the decisions on the substance 
of the allegations against you. And both--in order for that 
adversary system to work, one of those parties should not have 
their hands tied behind their back and the other one is free 
and big and healthy.
    And, you know, it is predictable what is going to happen in 
that kind of a situation. And regardless of whether or not the 
accused is innocent or guilty, the fact is that justice in this 
country comes when there is a fair trial.
    And so I support all measures that get at criminal 
misconduct. And also, you know, not to be left out of the 
consideration is the criminal defense bar.
    I know a lot of--under these measures that are being 
proposed, they bulk up the prosecution's ability to get at 
various crime, but I see nothing that would actually assist the 
criminal defense bar in terms of having the resources to defend 
these cases for people who will need public defenders.
    Of course, there is a group of--we certainly need to change 
our focus and concentrate more on the white-collar--I mean, 
upper echelon of the fraudulent activity, while at the same 
time dealing with those who perhaps may not have the funds to 
have an attorney, so they need a public defender.
    Would Ms. Glavin and Mr. Pistole, would you all support 
additional funding for the public defender's office federally, 
as well as grants, Federal grants to States to beef up their 
public defender programs?
    Ms. Glavin. I have not seen any type of proposed 
legislation on this. And I am sure that the department would be 
happy to take a look at this.
    Certainly, the department agrees that, in every case in 
which you have a vigorous prosecution, you are entitled to very 
competent defense counsel to defend against the prosecution. So 
I am sure that the department would be happy to look at any 
proposal that you might have.
    I am just not as familiar with what the funding levels are, 
so I can't speak to that.
    Mr. Pistole. Yes, Congressman, obviously, fundamental 
fairness and the rule of law assume that there is an adequate 
defense. And that is critically important to our system.
    I would be glad to work, obviously, with the department and 
the Committee to further explore that.
    Mr. Johnson. Okay, Mr. Pollack--Pollack or Pollack?
    Mr. Pollack. Pollack, Congressman.
    Mr. Johnson. I am sorry. Can you comment on that specific 
issue, as well?
    Mr. Pollack. Yes, Congressman. I think you have hit on a 
vitally important issue, and that is, as we beef up the Federal 
prosecution and investigation of these cases, we equally have 
to beef up the defense function. It is the only way that you 
are going to make sure that innocent people are not convicted 
along with the guilty.
    I talked with Congressman Scott about the vast disparity 
between the resources that are being allocated to the 
prosecution function and the defense function. And I think that 
disparity has to be lessened.
    I would also note that your point about public defenders is 
an apt one. And that line in terms of where the higher echelon 
is that can still afford the private bar versus the increasing 
numbers that are turning to public defenders keeps moving, and 
that is largely a function of the forfeiture laws that allow, 
at the time that a person is charged, while they are still 
presumed innocent and have been found guilty of no wrongdoing, 
to have their assets restrained and not available even for the 
use of their own defense, so that individuals who had had 
substantial resources nonetheless are turning to the taxpayer 
to fund their defense.
    And as long as that continues to be true, it is all the 
more important there are public resources available to defend 
these cases, which are necessarily complex cases that require a 
lot of resources to defend.
    Mr. Johnson. Anyone else want to comment?
    If I may, Mr. Chairman--okay, all right, thank you all very 
much.
    Mr. Conyers. Dan Lungren?
    Mr. Lungren. Thank you very much, Mr. Chairman.
    Mrs. Madsen, thank you for your testimony. I appreciate the 
fact that you have stated that Chamber's traditional position 
in supporting DOJ and the inspectors general, working to 
detect, investigate and prosecute fraud involving taxpayer 
funds.
    However, as one of the sponsors of the False Claims Act 
amendment, I am a little disappointed in the Chamber's position 
here. And I am trying to find out exactly what the position is, 
because you said two things. They both may be true and 
compatible, or they may be neither/or.
    You said, number one, I thought, that the False Claims Act 
has not been effective. And you gave the numbers of the 
relatively small amount of recoveries. And then, on the other 
hand, you said you don't support strengthening it.
    So what I am trying to find out is, are you saying the 
Chamber's position is you don't support the false--an effective 
False Claims Act or are you saying that you would support it if 
it were effective?
    Ms. Madsen. Mr. Lungren, you may have misconstrued my 
testimony. The statistics that the Department of Justice 
publishes show that in the cases in which the Department of 
Justice chooses to intervene, which is about 20 percent of the 
cases, are responsible for the lion's share----
    Mr. Lungren. I understand that. I heard that. You said 
that. What I would like to know is, do you support 
strengthening the False Claims Act to make it effective? Or do 
you believe it is inherently ineffective?
    Ms. Madsen. We believe the False Claims Act is effective as 
it sits and does not need these changes.
    Mr. Lungren. Okay, so it is effective, even though you have 
said that the results are paltry. I mean, that is what I can't 
quite understand.
    Again, I am biased in favor of it. People should know that 
it was originally called Lincoln's Law. It wasn't just Abraham 
Lincoln signed it, he thought it was so important. You read the 
language of the original act, it says it is to reward to the 
informer who comes into court and betrays his co-conspirator, 
indicating that there was a specific purpose to try and attract 
individuals who had knowledge to come forward.
    The second observation I have is that we have heard that 
the Department of Justice has a lot of work to do, has a lot of 
other things to do. Perhaps they can't get everything.
    And perhaps even if a smaller amount is gotten by these 
individual relaters, as opposed to the--as opposed to the 
Justice Department, the fact that they recovery means that that 
money was falsely obtained by the people against whom it was 
directed.
    The other question I would have is that, in 1986, we 
revived this law under President Reagan. As a matter of fact, 
the Reagan administration at that time sent us letters talking 
about how it was necessary for us to strengthen it. And as I 
recall at that time, some business groups supported the 
strengthening of the act so that it could be utilized.
    And do you know--I don't think you were there in 1986. I 
happened to be here in 1986. But do you know what the Chamber's 
position was back in 1986 when we improved the law?
    Ms. Madsen. You are correct that I was not here. But my 
recollection is that there were concerns about it. I think what 
has become visible, though, in the 20, what, 22 years since the 
law has been effective----
    Mr. Lungren. I was a mere child when I was here. I just----
    Ms. Madsen. Yes, I would have been a mere child, as well. 
The--is that when--when the statute is used by the Justice 
Department and when the Justice Department gets involved in a 
case that is--the law is very effective.
    The question is, for those non-intervening cases, whether 
that really is the best use of the government's money for those 
very, very small number of recoveries.
    And the reason I mentioned the mandatory disclosure rule is 
because the way the rule operates is that the contractors and 
grantees--and the rule also applies to Medicare 
intermediaries--has to disclose.
    Mr. Lungren. Right, no, I understand what you are saying.
    Ms. Madsen. They have to disclose.
    Mr. Lungren. You are supportive of those new improvements 
on those laws. I guess the question would be whether we need a 
multiplicity of laws to go against the fraud that might be 
there.
    I would just say that in 1986, the Business Executives for 
National Security, which is a group of executives basically in 
the ``military industrial complex,'' came forward testifying, 
saying they supported strengthening the law at that time, 
because, and these are their words, ``It is supportive of 
improved integrity to military contracting. The bill adds no 
new layers of bureaucracy, new regulations, or new Federal 
police powers. Instead, the bill takes a sensible approach of 
increasing penalties for wrongdoing and rewarding those private 
individuals who take significant personal risk to bring such 
wrongdoing to light.''
    And all I would say is, I think that testimony of that 
business organization, Business Executives for National 
Security, in 1986 is as valid today as it was then.
    Mr. Berman. Would the gentleman yield? I would ask for 
unanimous consent for one additional minute.
    Mr. Lungren. Of course I would be happy to yield to the 
gentleman who is going to agree with me.
    Mr. Berman. It is the only reason I asked.
    The gentlelady raises this issue, which I will pursue on my 
own time, of cases where the qui tam plaintiff brings the case, 
the Justice Department decides not to join in, but isn't it--
but I would just--this bill has nothing to do with changing 
that particular issue.
    This is a bill that strengthens the law and deals with some 
unfortunate court decisions that apply whether it is a qui tam 
plaintiff without Justice Department intervention or the 
Justice Department taking over the lead role in pursuing the 
case brought by the qui tam plaintiff.
    In other words, the testimony regarding non-intervention by 
the Justice Department and the merits of those suits really has 
nothing to do with the bill that is now in front of us. That is 
the only point I wanted to make.
    The bill we are dealing with deals with the substantive 
law, not the issue of what happens to a case where the Justice 
Department decides not to intervene.
    Mr. Lungren. I thank the gentleman. And before returning to 
my time, I would just say, Mr. Chairman, we went through a 
period of time in World War II where Secretary Biddle at that 
time thought that, for some reason, the approach that underlies 
the essence of the False Claims Act somehow interfered with the 
government's opportunity to investigate and the government's 
opportunity to contract for needed services.
    And that led to the emasculation, essentially, of the law. 
And it was--again, I would just reiterate, during the Reagan 
administration, that there was a reconsideration of the 
question of whether or not you could just rely on the Justice 
Department to utilize its resources in these circumstances 
where we needed again to resurrect this law.
    And all I would say is that what we are attempting to do 
with our amendments is to correct some specific legal decisions 
that seem to call into question whether or not you can go after 
subcontractors for fraud. And we also facilitate the ease with 
which the plaintiff's case can be dismissed by the plaintiff 
and the interaction of the Justice Department and the original 
bringer of the action.
    So it really goes to the question of whether you are going 
to continue to have an effective False Claims Act.
    And thank you very much, Mr. Chairman, for the time.
    Mr. Conyers. Howard Berman?
    Mr. Berman. Thank you, Mr. Chairman. I just wanted to make 
a couple of comments and then ask a couple of questions.
    It has already been mentioned that this law has brought in 
$22 billion to the taxpayers of recoveries from fraudulent 
actors, by people who have contracted with the government. In 
recent months, we have taken extraordinary steps to revive our 
economy. We have used government funds to shore up private 
entities. We have made a massive investment of taxpayer dollars 
to stimulate the economy.
    We can have a debate about the merits of any of those bills 
and policies, but the one thing we know is that, in the context 
of all these different programs, there will be some bad actors 
who will try to defraud the government through these programs. 
And that makes it even more important that we at this point 
strengthen what has proven to be an enormously successful tool 
against fraud.
    So there is a particular logic to the timing of doing this 
now, given what we have done in terms of public investments and 
private sector or the use of contractors, these kinds of 
things.
    I was amused to hear the opponents' primary argument 
against a bill which seemed to be that the False Claims Act 
doesn't need any fixing because it worked well enough or, as 
Ms. Madsen, said it is even more than sufficient. I don't agree 
with that conclusion.
    And, by the way, I do have a vivid memory of 1986, 
because--as young as I was--that and the Chamber--had more than 
concerns about the bill. They were in outright opposition to 
the bill and spent the next several years after the bill 
passed--the bill that was signed by President Reagan--trying to 
repeal or dilute a variety of its provisions. That was the 
Chamber's position at that time.
    What we have here is several judicial decisions that have 
weakened key provisions of the False Claims Act, narrowed its 
application, misconstrued congressional intent, and I think, in 
many cases, the clear language in the law and the legislative 
history, leaving entire categories of fraud outside the reach 
of the law.
    Mr. White has talked about a number of those issues in his 
testimony, but I would like to ask Mr. White two questions.
    First, the Chamber asserts that only 2 percent of the 
recoveries under the False Claims Act have come from qui tam 
suits that the government declined to join, putting aside that 
a huge amount of the $22 billion comes from cases that, because 
qui tam plaintiffs filed them, the Justice Department had to go 
through a process, which in many cases caused them to join that 
lawsuit and doesn't speak to those monies.
    But that 2 percent figure, it seems low to me. And does 
that accurately reflect the contributions of these cases? Give 
us some examples of why that number doesn't tell the whole 
story.
    Mr. White. Mr. Berman, first off, I wanted to thank you for 
having the foreclosure back in 1986 to resurrect this bill.
    The second thing is, you know, during my tenure at 
Taxpayers Against Fraud, I have worked with a lot of good 
Federal and State government attorneys who are as zealous 
advocates of protecting the public--but I can assure you--and 
they would tell you firsthand--that they need the help of 
whistleblowers to uncover what is going on inside of that 
company. Putting aside the mandatory disclosure rule, where the 
company gives you what they say is going on, that inside 
information from whistleblowers is key.
    To provide you one example of why that number isn't 
accurate and doesn't reflect truly what happens, in 1989, a 
case was filed by two Northrop Grumman employees against the 
contractors involving radar-jamming devices. And what the 
employees were saying was that they were ripping off the 
government, the fact that they were over-billing, they were 
doing a whole host of fraud that happened.
    The government looked at the case and, 3 years later, 
decided to decline to intervene in that case. The relaters and 
their counsel, convinced that there was something wrong going 
on, proceeding forward for the next 9 years on their own, 
investigating, spending hundreds of thousands of dollars, 
investigating what was going on there.
    Finally, in 2002, 12 years after initially filing that 
case, the government intervened and the case settled in 2006 
for over $160 million. That case, in the Department of Justice 
statistics, is listed as an intervening case, but I posit that, 
for 9 years, the government wasn't there. It was because of the 
efforts of that relater's counsel.
    So that 2 percent number doesn't reflect the billions--and 
the number is well into the billions, and I can give you a more 
accurate count--of the times where the government declined, the 
relaters and their counsel moved forward, and the government 
subsequently intervened. Those cases happen time and time again 
to the tune of well over $1 billion.
    Mr. Conyers. Bob Goodlatte?
    Mr. Goodlatte. Well, thank you, Mr. Chairman.
    And I thank all these panelists for their contribution 
today.
    I would like to start by asking a question of Acting 
Assistant Attorney General Glavin.
    Welcome. You mentioned that the Department of Justice is 
working with the inspector general of the TARP to find ways to 
avoid fraud and abuse of the stimulus package fund. And I 
wondered if you could tell us in what ways you are acting 
together to accomplish this.
    And do you plan on harnessing technological tools, like 
tracking software, to track where the funds from TARP and the 
stimulus bill are going and how they are being used?
    I recently introduced legislation along with Congresswoman 
Maloney from New York that would require the use of software to 
aggregate all the government reports to get a full picture of 
how the recipients of the TARP money are using it. And I wonder 
if you are familiar with that technology and if you are 
planning on deploying it.
    Ms. Glavin. I am not as familiar with the technology just 
mentioned. What I can say about the department's relationship 
with the TARP is that, one, it is a natural relationship, 
because the TARP is going to be doing investigations. And, of 
course, the department would handle prosecutions or referrals. 
And we have already, you know, had discussions with the office 
of the SIGTARP about anticipating that and about how to do it.
    Secondly, I know there is coordination with the SIGTARP, in 
terms of I know that they are--that office has met a number of 
times with the FBI to sort of talk about coordinating and 
leveraging resources.
    I know the SIGTARP has also formed a task force with a 
number of different investigative agencies to talk about how to 
share information, leverage resources, do the necessary 
training, with a bill that includes a lot of sub-provisions to 
it and can sometimes be complex to understand how the monies go 
out and what to look for in terms of fraud.
    I know that the department also has had discussions with 
the SIGTARP, specifically about our experience with the False 
Claims Act and whistleblowers. SIGTARP has a hotline, and there 
would be a natural partnership there.
    So it is--we have an ongoing dialogue with the SIGTARP, as 
well as we do with most of the inspector general community.
    Mr. Goodlatte. In your communication with them, would you 
look into this technology, as well, and have conversations with 
them about the possibility of utilizing it?
    Ms. Glavin. I would be happy to follow up on that once I 
get a little more familiarity with it, sir.
    Mr. Goodlatte. Great. Thank you.
    And a follow-up question on a separate subject. What 
statutes is the department using in bringing charges against 
those who engage in predatory lending or mortgage companies 
that defrauded their customers?
    Ms. Glavin. I mean, the department uses its traditional 
statutes, such as the mail fraud, wire fraud statute. The 
amendments to the major fraud statutes, as well as the bank 
fraud statutes, that would expand the definition of a financial 
institution to include mortgage-lending businesses would give 
us another tool in which to prosecute people who defrauded 
mortgage-lending businesses, such that we don't always have to 
look for mails and wires and see that they are further into the 
scheme.
    One of the reasons that we support the amendments in the 
FERA legislation is because it would certainly make some of the 
crimes easier to explain and present, in terms of our grand 
juries and to juries.
    Mr. Goodlatte. Thank you.
    Mr. Pistole, it is my understanding the FBI has currently 
18 regional mortgage fraud task forces. And I wonder if you 
could explain that to us. Why were these task forces set up on 
a regional basis like that?
    Mr. Pistole. Yes, Congressman. The idea was to leverage the 
resources beyond the FBI with the other--both Federal, State 
and local investigators to approach the issue from a broader 
perspective.
    So in addition to those 18 task forces, we had the 47 
working groups. And we also have the national mortgage fraud 
team at headquarters to try to use intelligence, such as you 
were talking about with software, to drive those 
investigations, rather than sitting back and waiting for 
referrals, whether it is from SIGTARP or somebody else.
    So we have members from other, for example, HUD or Federal 
Reserve or State or local police, perhaps, that receive 
referrals trying to work in a unified way to bring a broader 
perspective, rather than just this specific, discrete area that 
would limit our information.
    The whole idea is to push as much information as we can to 
our partners, obviously, while protecting privacy and all those 
issues, but making sure that we have the best available 
information across the country. And we believe these regional 
task forces and working groups are the best way to accomplish 
that.
    Mr. Goodlatte. Are you getting results?
    Mr. Pistole. We are. We have had a number of successful 
matters. You heard about one earlier in Chicago, dealing with a 
recent takedown of an undercover operation, where we had some 
very good successes. And that is all part of this effort to 
leverage our resources with other agencies.
    Mr. Goodlatte. One more question, if I might, Mr. Chairman, 
to Mr. Mintz. Are you seeing results from your public awareness 
campaign to educate consumers about these various fraud 
schemes?
    Mr. Mintz. Thank you for asking.
    Frankly, no. And the reason is, as I said in my testimony, 
I think that there are so many multiple conduits from which 
people are hearing about help and so many multiple conduits to 
which they would go for help that the ability of swindlers to 
step in and interpose themselves as part of the help is very 
difficult to stem on a local level.
    It is why I have suggested that this Committee should 
consider using the 311 systems and the 211 systems across the 
country as the one tamperproof, already-trusted source through 
which people would be able to get information.
    From a local perspective, when I step up in front of a 
camera and tell the public, ``Be careful of X,'' you need to 
tell them where to go and where it is safe. And so if you all 
could leverage the resources and the regulations to make sure 
that, for example, only through 311s and 211s could you access 
HUD-certified counselors and add in a ban on the fee-for-
service in this industry, you would effectively shift the tide, 
and people would be able to turn to the one number that they 
already know, the one number that nobody can pretend is them, 
and access those services.
    Without that, the truth is, it is a very complicated 
message, and it is much easier to be swayed by the swindling 
messages.
    Mr. Goodlatte. Thank you.
    And thank you for your forbearance, Mr. Chairman.
    Mr. Conyers. Sheila Jackson Lee?
    Ms. Jackson Lee. Mr. Chairman, thank you for holding this 
hearing. And it is both needed and maybe sad, a sad commentary 
on where we are with respect to the basic commitment to legal 
structures that will protect consumers.
    We have seen an enormous amount of challenges to the 
system. And I would suggest to my good friend, who is 
representing the criminal defense lawyers, that it is not 
expanded as much as it is fixing and restructuring, because 
apparently we have some glaring loopholes that large trucks 
have been able to go through both in the metaphoric manner, as 
well as literally.
    And I go to you, Assistant Attorney General Glavin, on why 
we are where we are. Let me just pose to you the fact that we 
have seen AIG prosecution, at least some malfeasance. We have 
seen it from a former hometown company of mine that had great 
respect previously, Enron. We have seen it from WorldCom, 
Adelphia. We have seen it from another native Texan, Stanford.
    We have seen these actions. We have seen a proliferation of 
major corporate fraud cases when we have also seen over the 
years, as our good friend from the criminal defense lawyers 
have indicated, maybe increase in penalties.
    Can you tell us what we are doing wrong that we are still 
seemingly having the atmosphere that creates or seems to grow 
these failures?
    Ms. Glavin. Congresswoman, where there is a lot of money 
involved--and this is an age-old problem--when money goes out 
the door, lots of money involved, greed is involved. It is not 
something that you could probably ever stop to the end of time.
    And what we do at the department is, when we see problems 
form, such as we saw with big corporate fraud in the last 10 
years, we put something out there to address the problem, like 
the corporate fraud task force, do what we can to get in front 
of it and prosecute those crimes, educate prosecutors as to the 
new schemes that develop.
    We see it again. The Hurricane Katrina fraud task force 
formed a few years ago. As soon as we recognized there would be 
a big outlay of funds in connection with that, we knew there 
would be fraud.
    Ms. Jackson Lee. So you are saying that the climate 
generates bad behavior in many instances sometimes. Let me just 
ask--give me one major new legal tool that you would want as 
part of the DOJ.
    Ms. Glavin. I have to pick one?
    Ms. Jackson Lee. Just one.
    Ms. Glavin. We support the passing of the Fraud Enforcement 
Recovery Act, so I would say that is one, even though it is got 
several legal tools in it. But at this time, we would support 
the passage of that, and it went through Senate Judiciary 
Committee.
    Ms. Jackson Lee. All right.
    Let me move quickly to Mr. Rheingold and ask the question, 
do you think we should add language in--either through 
legislation, a freestanding bill, and otherwise? There are some 
fine lines between how the CEO of corporations seems to emerge 
undercover.
    We know that our good friend from Countrywide is still 
moving about and certainly has quite a bit of freedom here in 
the United States. But we are trying to craft language that 
suggests that malfeasance, inappropriate behavior bars you from 
ever doing business with the United States, whether you come 
back as a turtle or you come back as a dove, which is what many 
of the corporations do.
    What do you think about that added enhancement, though, you 
know, barring doing business, obviously, means that if 
Countrywide, for example, had Freddie Mac and Fannie Mae loans 
and tragically so many people were hurt, that they just can't 
be in the business, no matter how they come back? What do you 
think about that?
    Mr. Rheingold. I think fundamentally it is a good idea. I 
think one of the questions, when we turn about all this money 
out there, we had all this money that wasn't being regulated. 
We had all of this money that was being pushed out there, and 
it was the wild, wild west. All sorts of bad behavior could go 
on because nobody was being responsible for it and nobody was 
being held accountable.
    So if you begin to hold the CEOs of these major companies 
accountable for the culture and the behavior of their 
companies, maybe that cost-benefit analysis will work in the 
future.
    So that next time lots of money is out there and lots of 
money can be made, they might think twice about creating a 
corporate culture that engages in systematic fraud.
    Ms. Jackson Lee. And let me quickly ask--and I would like 
to ask the FBI director if he would follow up on a question 
that I am going to ask, in terms of any tools that you need, 
and particularly on these whistleblower cases, which I think 
are very crucial. People need protection in the workplace.
    But, again, Mr. Rheingold, if, for example, you suffer--
this is your consumer hat now, not necessarily your legal hat--
suffered in your credit score because you were a victim to 
predatory lending, should you have an ability to seek an appeal 
or reprieve on a score that went down because of your 
victimizing through that predatory lending process?
    Mr. Rheingold. That is a whole other issue, but, yes, there 
are significant issues around consumers' ability to fix their 
credit score. Credit reporting and people's financial 
information is being ruined on a daily basis based on loans 
they should not have gotten, loans they didn't get.
    And, in fact, one of the things that we need to do to 
improve the Fair Credit Reporting Act is that people have more 
control over their financial information and correct errors in 
that. And right now, we have a fair credit reporting system 
that simply doesn't work properly to protect consumers.
    Ms. Jackson Lee. But if you would conclude--I just need you 
to tell me about the two that you may need on the whistleblower 
aspect. The FBI usually is investigating on the basis of 
whistleblower claims under some of the bills that have been 
here, but what do you need further to provide an enhancement 
and protection of that process?
    Mr. Pistole. Well, I agree with Ms. Glavin's comments. Our 
issue is more simply the number of resources, rather than the 
legal tools, other than what she has mentioned. So where the 
Committee and the Congress can be most helpful for the FBI and 
others is--are in the amount of resources that we have to 
address this critical issue.
    Ms. Jackson Lee. And you investigate both Federal employees 
and outside people who are whistleblowers?
    Mr. Pistole. Sure.
    Ms. Jackson Lee. All right.
    I yield back. Thank you.
    Mr. Conyers. Bill Delahunt?
    Mr. Delahunt. Thank you, Mr. Chairman. I want to pose a 
question.
    I mean, the economic crisis that we are in the midst of, 
the cause, if you will, of that crisis is not necessarily 
fraud, but it is the lack of a regulatory scheme--as I think 
you suggested, it was the wild west.
    If we had the tools and the resources had been allocated, 
would it have prevented the economic--or the financial crisis 
that we are experiencing?
    Mr. Rheingold. I think the answer is absolutely yes. I 
talked----
    Mr. Delahunt. It would have?
    Mr. Rheingold. It absolutely would have. I talked about 
what we saw----
    Mr. Delahunt. Without having a regulatory regime that----
    Mr. Rheingold. Oh, no. No, we need an--absolutely, we need 
to have a restructured regulatory market where accountability 
is in place.
    What we saw in the 1990's in communities like Roxbury, and 
Jamaica Plain, and Mattapan, and communities in Chicago and 
Atlanta, were the same fraud that now permeates the whole 
country. And we knew it was going to happen because there was 
no accountability and there was no regulatory structure that 
actually protected the consumer from the bad behavior of banks.
    And when States attempted to address those problems, most 
notably Georgia, the Federal regulators not only stopped those 
consumer--they not only did not support those consumer 
protections, but they pre-empted those consumer----
    Mr. Delahunt. Right. And I understand that. But I guess 
what I am saying is, is that--was there violations of a 
criminal statutory scheme that led to the crisis that we find 
ourselves in now?
    Mr. Rheingold. I am----
    Mr. Delahunt. Or is it lack of regulation?
    Mr. Rheingold. I am not a criminal attorney.
    Mr. Delahunt. Okay.
    Mr. Rheingold. But do I think that fraud permeated the 
mortgage lending industry for the last dozen years? Absolutely.
    Mr. Delahunt. But your understanding of fraud and my 
understanding of fraud might very well be the same, but it 
might be a behavior that currently is not criminalized.
    Mr. Rheingold. That could quite be possible. Again--yes.
    Mr. Delahunt. Let me ask the acting--the assistant attorney 
general, Ms. Glavin, her opinion on that.
    Ms. Glavin. I am not in a position to say what caused the 
current economic crisis.
    Mr. Delahunt. Okay.
    Ms. Glavin. What I do know is, looking back in retrospect, 
we have now seen a lot of schemes, such as Ponzi schemes, that 
could have gone on otherwise undetected that were exposed 
because people wanted to get their money out, it wasn't there--
--
    Mr. Delahunt. The collapse itself----
    Ms. Glavin. Yes.
    Mr. Delahunt [continuing]. You know, revealed what was 
going on.
    Ms. Glavin. Yes.
    Mr. Delahunt. But we don't know or it is subject to 
debate--my own opinion is it did not precipitate the collapse, 
but the lack of regulation and a lack of transparency. And I am 
not suggesting that we don't need more resources and we don't 
need to review and provide more tools.
    If it comes down to tools or resources--and I will direct 
this to the government witnesses, what is more important?
    Mr. Pistole. If I could start off with that, Congressman, 
going back to your first part of your question, the issue is 
partially--from an audit standpoint, for example, you look at 
fraud, waste or abuse, obviously.
    Mr. Delahunt. Right.
    Mr. Pistole. Some of the activity may have been fraud, 
obviously was fraud. Some may have been waste or abuse, which 
may not be--rise to a level of criminal violation.
    Again, from our perspective, we are looking at resources, 
because we are trying to do a lot of different things and 
trying to be proactive, rather than just reactive. We wouldn't 
need additional resources to do that. So that is our--from the 
FBI's perspective, it is a resource issue as much it is legal 
regimen issue.
    Mr. Delahunt. Ms. Glavin?
    Ms. Glavin. They are both pretty important.
    Mr. Delahunt. Okay.
    You referenced the TARP and I think it was the inspector 
general. And yet what I found particularly disturbing recently 
was a comment by the chair of the congressional oversight panel 
expressing frustration in the--with the Treasury Department not 
providing answers to the oversight panel.
    You are seeing--at least from what I am hearing, you 
represent that you are working in a collaborative way with 
Treasury? And if so, what is your secret, that somehow you are 
doing a--you seem to be getting more cooperation than Congress.
    Ms. Glavin. Speaking from the criminal division, as a 
criminal prosecutor----
    Mr. Delahunt. Right.
    Ms. Glavin [continuing]. We are working with the SIGTARP.
    Mr. Delahunt. Give me--what does that mean, that acronym?
    Ms. Glavin. Well, I mean, when it happens is what we do 
when we work with any inspector general's office.
    Mr. Delahunt. So it is the inspector general's office?
    Ms. Glavin. Yes, when I refer to the SIGTARP, I am 
referring to Mr. Barofsky, Neil Barofsky.
    Mr. Delahunt. And his team?
    Ms. Glavin. Yes.
    Mr. Delahunt. And does he have the resources?
    Ms. Glavin. You are going to have to ask him a little bit 
more. But what I can say is that there have been--I know he has 
had discussions with other investigative entities about how to 
leverage the resources.
    He has a certain amount of money in his budget. He wants to 
see if he is doing things that may perhaps overlap or he can 
work with FBI on so that they can pool their resources.
    Mr. Delahunt. I would hope that you and the FBI would 
coordinate with the inspector general and provide answers to 
the congressional oversight panel when they are proffered.
    Mr. Pistole. Right. We are, Congressman. And he is building 
his staff--I think he is up to 50 now--from where he was a 
couple months ago when he had just a handful.
    We actually had a meeting with him and his staff in New 
York yesterday. We meet regularly here. We have agents and 
analysts embedded with him to make sure that we can de-conflict 
and use those resources in the best possible way. And I would 
defer to him on the response to the oversight.
    Mr. Delahunt. That is all I have, Mr. Chairman.
    Mr. Conyers. Thank you.
    Mr. Delahunt. I thank the panel.
    Mr. Conyers. I thank them, too.
    This has been an extremely polite discussion about some 
matters that I don't think have been covered adequately. To be 
honest with you, the failures of the Federal justice system are 
so enormous that to rationalize them with a few bills that will 
be taken up, and everybody will agree with, does not uncover 
the failure to anticipate.
    You know, we all have talked about--we know that when huge 
amounts of money go out that there are going to be problems 
that follow it. But there is nothing in the Department of 
Justice annals that show that anybody did anything about what 
they already know would happen.
    It is always after the fact. And this hearing only sets a 
predicate for us to begin to try to get in front of the curve 
and not come rushing in with these homilies about the--we know 
people do wrong, will do wrong when the large amounts of money 
are flowing around. So if I don't feel happy about what I have 
heard, it is because it is correct.
    So I thank you very much. And the Committee is adjourned.
    [Whereupon, at 12:22 p.m., the Committee was adjourned.]
                            A P P E N D I X

                              ----------                              


               Material Submitted for the Hearing Record




                                 
