[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
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48-438 PDF WASHINGTON : 2010
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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
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