[Senate Hearing 112-357]
[From the U.S. Government Publishing Office]
S. Hrg. 112-357
OVERSIGHT OF THE FINANCIAL FRAUD ENFORCEMENT TASK FORCE
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HEARING
before the
SUBCOMMITTEE ON ADMINISTRATIVE
OVERSIGHT AND THE COURTS
of the
COMMITTEE ON THE JUDICIARY
UNITED STATES SENATE
ONE HUNDRED TWELFTH CONGRESS
FIRST SESSION
__________
JUNE 30, 2011
__________
Serial No. J-112-32
__________
Printed for the use of the Committee on the Judiciary
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COMMITTEE ON THE JUDICIARY
PATRICK J. LEAHY, Vermont, Chairman
HERB KOHL, Wisconsin CHUCK GRASSLEY, Iowa
DIANNE FEINSTEIN, California ORRIN G. HATCH, Utah
CHUCK SCHUMER, New York JON KYL, Arizona
DICK DURBIN, Illinois JEFF SESSIONS, Alabama
SHELDON WHITEHOUSE, Rhode Island LINDSEY GRAHAM, South Carolina
AMY KLOBUCHAR, Minnesota JOHN CORNYN, Texas
AL FRANKEN, Minnesota MICHAEL S. LEE, Utah
CHRISTOPHER A. COONS, Delaware TOM COBURN, Oklahoma
RICHARD BLUMENTHAL, Connecticut
Bruce A. Cohen, Chief Counsel and Staff Director
Kolan Davis, Republican Chief Counsel and Staff Director
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Subcommittee on Administrative Oversight and the Courts
AMY KLOBUCHAR, Minnesota, Chairman
PATRICK J. LEAHY, Vermont JEFF SESSIONS, Alabama
HERB KOHL, Wisconsin CHUCK GRASSLEY, Iowa
SHELDON WHITEHOUSE, Rhode Island MICHAEL S. LEE, Utah
CHRISTOPHER A. COONS, Delaware TOM COBURN, Oklahoma
Paige Herwig, Democratic Chief Counsel/Staff Director
Danielle Cutrona, Republican Acting Chief Counsel
C O N T E N T S
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STATEMENTS OF COMMITTEE MEMBERS
Page
Blumenthal, Hon. Richard, a U.S. Senator from the State of
Connecticut.................................................... 3
Grassley, Hon. Chuck, a U.S. Senator from the State of Iowa...... 4
Kobuchar, Hon. Amy, a U.S. Senator from the State of Minnesota... 1
Leahy, Hon. Patrick J., a U.S. Senator from the State of Vermont,
prepared statement............................................. 49
WITNESSES
Adkins, Robb, Executive Director, Financial Fraud Enforcement
Task Force, Washington, DC..................................... 8
Jones, B. Todd, U.S. Attorney for the District of Minnesota,
Minneapolis, Minnesota......................................... 7
QUESTIONS AND ANSWERS
Responses of B. Todd Jones and Robb Adkins to questions submitted
by Senators Coburn and Sessions................................ 25
SUBMISSIONS FOR THE RECORD
Jones, B. Todd, U.S. Attorney for the District of Minnesota,
Chairman Attorney General's Advisory Committee, and Robb
Adkins, Executive Director, Financial Fraud Enforcement Task
Force, Department of Justice, Washington, DC, joint statement.. 33
OVERSIGHT OF THE FINANCIAL FRAUD ENFORCEMENT TASK FORCE
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THURSDAY, JUNE 30, 2011
U.S. Senate,
Subcommittee on Administrative Oversight and the Courts
Committee on the Judiciary,
Washington, DC
The Subcommittee met, pursuant to notice, at 10:08 a.m.,
Room SD-226, Dirksen Senate Office Building, Hon. Amy
Klobuchar, Chair of the Subcommittee, presiding.
Present: Senators Blumenthal and Grassley.
OPENING STATEMENT OF HON. AMY KLOBUCHAR, A U.S. SENATOR FROM
THE STATE OF MINNESOTA
Senator Klobuchar. I am pleased to call this hearing of the
Senate Judiciary Subcommittee on Administrative Oversight and
the Courts to order.
Good morning, everyone. Thank you for being here.
Senator Sessions said to go ahead, and we may be having
other Senators joining us later in the morning.
Today, we are going to focus on the oversight of the
Financial Fraud Enforcement Task Force, which is the largest
coalition of Federal, state and local partners ever assembled
in this country's history to combat fraud.
This issue is vital to our country as a whole and to
individuals and families for a multitude of reasons. First of
all, mortgage fraud caused many Americans to end up in homes
they could not afford, which helped lead to the financial
crisis and recession. Certainly, we saw that in my home State
of Minnesota early on that that was the canary in the coal
mine; people starting to get in trouble on their homes because
they took mortgages out from people that did not have their
best interests in mind.
The proliferation of Internet scams has made many
vulnerable citizens at risk of being swindled by false claims
of easy money and cash prizes.
Fraud on government programs can undermine confidence in
government and diminish the benefit of cruical public
investments at a time where you have senior citizens that could
barely afford the health care. The thought that there are
storefronts set up where people are receiving Medicare checks
that they do not even deserve, that they do not even qualify
for just can make anyone want to scream.
So the idea here is to cut back on that and do something
about fraud, and that is what the task force is about.
Fraud and Medicare and Medicaid has cost the Nation
billions of dollars, something we can ill afford, given the
dire fiscal situation we are in today.
In the investment realm, we have seen what criminals like
Bernie Madoff can do to the savings and the finances of
families, schools, and charitable organizations.
For all of these reasons, it is critical that our antifraud
efforts be effective, efficient, and comprehensive.
As a former prosecutor, I know that this is no easy task.
We must ensure that we are providing adequate tools and
resources to law enforcement and that we have the necessary
laws and policies in place to deter this kind of fraud.
We must have well trained prosecutors and other government
officials, and we must promote the public awareness of the
dangers of financial fraud.
Finally, we need collaboration among law enforcement and
regulatory agencies at all levels of government. It has always
been my experience, when I was county attorney, that if there
was a major fraud committed, the citizens really did not care
who prosecuted, whether it was the local prosecutor's office or
the state attorney general's office or the U.S. attorney's
office, they just wanted us to get the job done.
And the other thing we have learned is that these crooks do
not respect boundaries. They do not care if they are doing
something in another country or another county or another
state. And so that is why combining our resources so that we
are better able to tackle crimes and to be as sophisticated as
the crooks that are breaking the law is so critical in the area
of white collar crime.
President Obama formed the Financial Fraud Enforcement Task
Force in late 2009. The task force includes more than 25
Federal agencies, the 94 U.S. attorneys' offices, the National
Association of Attorneys General, and the National District
Attorneys Association.
I think it is very important that local prosecutors be
represented. So many crimes, especially since 9/11, when our
U.S. attorney's office, understandably, focused on many of
these terrorism crimes, so many of the regular white collar
crimes, including crimes involving millions and millions of
dollars, were handled on the county level by the local
prosecutors, by the DAs' offices. So they have to have a part
of this task force and be a part of the task force.
The task force seeks to harness the capabilities of its
member agencies and foster coordination in the fraud
enforcement efforts. Its work covers a wide variety of
fraudulent activities in the areas of mortgage lending,
Recovery Act stimulus funds, securities, commodities, and
government procurement and grants.
The task force recently came out with its first year
report, and we will examine that report today. We will discuss
the operations of the task force, how it has enhanced antifraud
efforts at the Department of Justice, and the steps that it has
taken to increase coordination among government agencies.
We have with us today two excellent representatives of the
task force. First, we have B. Todd Jones, the U.S. Attorney
from the great State of Minnesota, who sits on the steering
Committee of the task force. This is Todd Jones' second round
as U.S. attorney. So he brings a lot of experience to the job
and to our state.
And, second, we have Robb Adkins, who is the executive
director of the task force.
I will give a more complete introduction of our witnesses
before they testify.
Senator Klobuchar. And I would like to turn it over to
Senator Blumenthal, if he would like to make some opening
remarks.
I also see we have been joined by Senator Grassley of Iowa,
and I am sure he has a few things he would like to say, as
well.
Senator Blumenthal.
STATEMENT OF HON. RICHARD BLUMENTHAL, A U.S. SENATOR FROM THE
STATE OF CONNECTICUT
Senator Blumenthal. Thank you, Madam Chairwoman, Madam
Chairman. And first of all, thank you for having this hearing
and, again, demonstrating your leadership in the area of
combating financial fraud and related issues that undermine so
importantly the integrity, as well as trust of the public in
our financial system.
These crimes are more than just superficial or passing in
their impact. They are enduring because they go to the core of
what people trust and need to have confidence in.
I want to begin by saying that I have reviewed the task
force first year report, which outlines increased prosecutions
and convictions associated with mortgage fraud and related
kinds of criminal activity. Those developments are very
positive, and I really want to commend your efforts in this
area.
Twice as many defendants were charged in mortgage fraud
cases in 2010 as in 2009, and twice as many convictions and,
roughly, twice as many people were sentenced at every level of
criminal severity, and that is very good news in sending a
message, a deterrent message about the severity and seriousness
of this Administration in dealing with this kind of crime.
The 533 defendants that were found guilty of mortgage fraud
last year are a dramatic increase from the 235 the year before,
but I think everyone here, and I know both of you, being very
experienced and expert prosecutors, agree that the scope of the
problem and the magnitude of what remains to be done is
certainly very daunting and important.
And that is partly why we are here today, to make sure that
the progress continues and, also, that the public understands
the difficulty of doing these cases, and that is the second
point I want to make here.
Not only have you made progress, but I think you have
amassed the infrastructure and the cooperation that is
necessary to address these problems going forward. A lot of
people simply do not understand these are very document-
intensive, resource-demanding cases.
They are not like the bank robberies that we used to do
when I was United States attorney in Connecticut years ago,
which were relatively simple cases. We moved to white collar
crime fraud, which was more demanding, and the kinds of crimes
that you are investigating and prosecuting are much more
demanding and difficult to investigate and prosecute, because
you need not only dedicated and skilled professionals, which we
have always had in the FBI and the U.S. attorneys' offices,
but, also, individuals who are really schooled and trained in
the kinds of investigation that needs to be done.
So I want to thank you for your efforts so far and say that
I look forward to working with you, cooperating with you,
aiding you in Minnesota, where I know you are doing great work
as the United States attorney and in Washington, DC, Mr.
Adkins, where you are bringing together the kinds of resources
that we need to do not only on mortgage fraud, but, also, the
gasoline price spikes that we have seen and crimes that may be
related to them.
And as you know, I have advocated even more aggressive
action in that area, and look forward to working with you.
Thank you for being here today.
Senator Klobuchar. Thank you very much.
Senator Grassley from the State of Iowa.
STATEMENT OF HON. CHUCK GRASSLEY, A U.S. SENATOR FROM THE STATE
OF IOWA
Senator Grassley. Thank you very much, Madam Chairman, and
I congratulate you on your leadership of this committee.
It is a Committee that, when I chaired it in the 1980s, the
subcommittee, I should say, when I chaired it in the 1980s, we
established a record that was able to help us get the false
claims bill passed, and that bill, as you know, has brought $28
billion back into the Federal Treasury.
Senator Klobuchar. Those are big shoes to walk in there,
Senator Grassley. Thank you.
Senator Grassley. You bet. Today's hearing provides us the
opportunity to fulfill our constitutional duty and a continuing
basis to conduct oversight. It is also an opportunity to
further address fraud against American taxpayers, an issue that
is not a partisan one. It is one that, obviously, a lot of us
take very seriously.
Most recently, this Committee held a hearing on fraud
enforcement efforts of the Justice Department in January.
Unfortunately, we just received responses to our written
questions from that hearing last night after 5 p.m., nearly 5
months after the questions were submitted.
While I am glad the Justice Department was able to finally
get answers to these questions returned to the committee, it
does a disservice to all members of the committee, Republican
or Democrat, to get them after 5 p.m. the night before the next
hearing on the same subject.
Notwithstanding the 5-month delay in receiving those
written answers to our questions, Senator Leahy and I, joined
by Senator Klobuchar, introduced the Fighting Fraud to Protect
Taxpayers Act in May. This important legislation provides a
number of fixes to the criminal code to assist in fraud
enforcement, as well as providing additional resources to the
Justice Department to combat fraud.
It provides these resources from fraud recoveries without
utilizing taxpayers' resources. The Committee reported the bill
by a strong bipartisan vote, and it is now on the Senate
calendar.
While our bill addresses important legislative changes to
help combat fraud, important work remains. This hearing is a
part of that continued work. By conducting continued oversight,
we can ensure that the Justice Department is targeting fraud
aggressively on behalf of our taxpayers.
This is especially important given the significance of
annual government expenditures in programs like Medicare and
Medicaid, Defense Department procurement, not to mention the
increased expenditures over the last few years, including the
President's $1 trillion stimulus spending, the AIG bailout, the
auto industry bailout, the government conservatorship of Fannie
Mae and Freddie Mac, and the TARP program.
Understanding the significant expenditures of taxpayers'
dollars, President Obama signed an executive order in November
2009 creating the Financial Fraud Enforcement Task Force. The
task force is ``designed to strengthen the efforts of the
Department of Justice to investigate and prosecute significant
financial crimes and other violations relating to the current
financial crisis and economic recovery efforts.'' That is the
end of a quote about the establishment of the task force.
General Holder stated that the task force will, ``wage an
aggressive, coordinated and proactive effort to investigate and
prosecute financial crimes.'' He added, ``not just hold
accountable those who helped bring about the last financial
meltdown, but to prevent another meltdown from happening.''
While I appreciate the Attorney General's comment on the
task force, I want to know more about how the task force is
operating and whether it is achieving the stated goals of the
President and AG.
Also, all too often, here in Washington, task forces and
commissions are created to make people think that they are
doing more than they actually are. It is a way for public
servants to tell the American people they are addressing a
problem, when nothing really changes. I want to hear from
witnesses about how the task force has furthered the fraud
fight.
For example, I am concerned that the task force may, in
fact, be too broad in its missions. The task force is made up
of a steering Committee chaired by the deputy attorney general,
vice chaired by associate attorney general. There is also a
training and information-sharing committee. Then there is a
separate victim rights committee. There are also five separate
working groups within the task force. Each of those separate
working groups has no less than three participating Federal
agencies.
It appears that a lot of time and effort could be expended
just meeting and coordinating all these task forces and working
groups. This is time that could be spent actually investigating
and bringing prosecutions, and I want to hear some specific
examples of how this has added value and not simply facilitated
a more bureaucratic process combating fraud.
I am also concerned that the task force may be a press
release collection agency utilized by the Justice Department to
collect examples of investigations and prosecutions that would
otherwise have been brought.
My staff has heard this specific accusation from agents and
attorneys in the field. So I would like to learn a bit more
about why the task force is necessary and about how taxpayer
dollars are utilized to facilitate all meeting and coordinating
it has added to the fighting of the fraud process.
I thank you, Madam Chairman.
Senator Klobuchar. Thank you very much, Senator Grassley.
Can the witnesses please stand to be sworn?
[Witnesses sworn.]
Senator Klobuchar. Thank you. As I mentioned, we are
pleased to be joined today by, first of all, B. Todd Jones, who
is the U.S. Attorney for the State of Minnesota. He also serves
on the steering Committee of the task force and chairs the
Attorney General's Advisory Committee of U.S. Attorneys.
Mr. Jones also served as U.S. Attorney from Minnesota from
1998 to 2001 and served on active duty with the United States
Marine Corps from 1983 to 1989, and again in 1991 during
Operation Desert Storm.
He graduated from Macalester College in 1979 and the
University of Minnesota Law School in 1983.
When I was the county attorney, the DA in Minnesota, he and
I worked extensively together.
And, Mr. Adkins, you will be happy to know that Todd Jones
and I actually went together once to the White House, my very
first visit to the White House--I had not even been on a tour
before--and we were invited in to talk about the introduction
of a crime bill, the hate crimes bill.
And during the speeches where President Clinton spoke and I
spoke, I mentioned Todd Jones and mentioned our coordination
and I said, ``Mr. President, we work together so well, we talk
on the phone nearly every day.'' And so then the next day, I
got home and it was a Saturday and I got a phone call and it
was from Todd Jones.
I go, ``Why are you calling me on a Saturday? '' He said,
``You told the President of the United States we talk on the
phone nearly every day and I am taking it seriously.''
[Laughter.]
Senator Klobuchar. So he is truly an honest man.
Next, we have Robb Adkins, who has been the executive
director of the task force since February 2010. Mr. Adkins
became a Federal prosecutor in 2001 and was named chief of the
U.S. Attorney's office in Santa Ana, California in 2007.
He is a recipient of the Attorney General's Award for
Exceptional Service, the highest commendation in the Department
of Justice, and was once named one of the top 20 lawyers in
California under the age of 40.
He graduated from Stanford University and the Georgetown
University Law Center.
Mr. Adkins, I understand you are leaving the task force in
July, and I would like to thank you for your tireless work. I
know you have done a tremendous job in combating fraud and I
wanted to make sure that we all thank you for your service over
the last year and a half, as well as your time as a prosecutor.
I look forward to hearing more about your work with the
task force.
Mr. Jones, if you would like to begin.
STATEMENT OF B. TODD JONES, U.S. ATTORNEY FOR THE DISTRICT OF
MINNESOTA, MINNEAPOLIS, MINNESOTA
Mr. Jones. Thank you and good morning, Madam Chair, Senator
Grassley, Senator Blumenthal. It's a privilege to be here with
you today.
As you all know, the financial crisis has, in some way,
impacted virtually every American across the country, and the
underlying purpose of the Financial Fraud Enforcement Task
Force is to address that crisis with an equally comprehensive
response.
Senator Klobuchar, you have already talked about it. I know
you understand the value of collaboration and, as you had
mentioned, 12 years ago, when we worked together on a number of
issues of mutual concern, including fraud, when you were the
county attorney and I had the privilege of first serving as the
United States attorney, the importance collaboration was always
at the forefront.
As we learned then and we know now, different partners, law
enforcement partners have different resources, they have
different tools in their box, and the goal overall of effective
law enforcement is to bring everything we have collectively to
bear on the issues at hand.
That is what this multiagency task force is about. It is
not, in strict terms, an operational traditional task force. We
have task forces like that all across the country, composed of
agents and prosecutors working every day, making cases across
the country.
This task force operates at the 30,000-foot level, so to
speak, providing coordination and training, sharing information
and expertise among all the partners who are all on the same
side working toward the same goal.
The President created this task force, as has been said, in
November of 2009. It is composed of more than 25 Federal
agencies, as well as state and local partners, and it is one of
the largest coalitions ever brought to bear in confronting
fraud.
It is chaired by the Attorney General of the United States
and includes the criminal and civil divisions of the Department
of Justice, as well as all 94 United States attorney offices.
But this is not just a DOJ initiative. The task force
includes, just to name a few, Department of Treasury, HUD,
Commerce, Homeland Security, numerous Federal inspectors
general, the FDIC, the FTC, the SEC, the IRS, special inspector
general for TARP, and the Recovery Accountability and
Transparency Board, as well as numerous states attorneys
general.
The executive order directs us to use the full criminal and
civil enforcement resources of all these different agencies to
do five things: first, investigate and prosecute; second,
recover criminal proceeds; third, address discrimination in the
lending and financial markets; fourth, enhance coordination
among Federal, state and local authorities; and, last, to
conduct training and outreach to the public.
As Chairman of the Attorney Generals Advisory Committee, I
am honored to serve on the steering committee, along with
representatives from the other agencies. However, the
leadership of this group extends beyond the Beltway.
For example, my colleague in the Southern District of New
York, Preet Bharara, the United States attorney, along with
Lanny Brewer, the Assistant Attorney General of the Criminal
Division, representatives from the FTC and the CFTC, chair the
Securities Fraud Working Group.
On the West coast, the Mortgage Fraud Working Group is co-
chaired by another one of my colleagues, U.S. Attorney Ben
Wagner in the Eastern District of California, and he knows
firsthand the impact of the mortgage crisis because his
district has one of the highest foreclosure rates in the
country.
To give you an idea as to the multiagency approach of the
task force, he chairs that group with representatives from our
civil division here in Washington, DC, the FBI, HUD OIG, and
the National Association of Attorneys General.
The task force also has developed a comprehensive network
establishing financial fraud coordinators in every United
States attorneys' office. The task force has equipped this
network with more tools and better trained personnel by
compiling and distributing a resource guide of financial
databases, and information is important, holding national
training conferences, launching a Website with fraud reporting
and distributing information about emerging fraud trends.
I know firsthand the value of having this kind of
individual in the offices, because all of the civil and
criminal assistant U.S. attorneys that work with me can rely on
our fraud coordinator to literally wire them in nationally in a
way that hasn't really occurred before with all of the best
practices and provide the governmentwide network that has got
the complete alphabet soup of financial regulators at their
disposal.
Many of those agencies my folks have never worked with
before.
I see my time is running out. I will pass it off to Robb
Adkins, and look forward to addressing any of the questions
that you have.
Thank you.
[The prepared testimony of Mr. Jones appears as a
submission for the record.]
Senator Klobuchar. Thank you.
Mr. Adkins.
STATEMENT OF ROBB ADKINS, EXECUTIVE DIRECTOR, FINANCIAL FRAUD
ENFORCEMENT TASK FORCE, WASHINGTON, DC
Mr. Adkins. Good morning, Chairman and distinguished
members of the subcommittee. It is a privilege for me to appear
before you today to talk about the Financial Fraud Enforcement
Task Force and our continuing fight to address fraud.
I'm honored to appear before you today with Todd Jones, the
U.S. Attorney for Minnesota, who is a national leader of this
effort on the task force and is also a national example for the
fraud enforcement that he does in his home district in
Minnesota.
As U.S. Attorney Jones has described, the task force has a
broad membership and mandate to focus on the full array of
financial fraud. That includes mortgage fraud, investment
fraud, securities and commodities fraud.
It also includes those efforts that are designed to help
the economy recover and to address those who would seek to
defraud those efforts around the country.
As more fully detailed in the task force's annual report,
which the Chairman described, there are many ways in which the
task force has been very successful within its first year. I
want to highlight a few of them and discuss more of them with
you.
As Senator Grassley correctly noted, the task force is very
broad. That breadth comes with challenges, but it also comes
with strengths.
One of the great strengths of the task force is training
and information-sharing, which is critical to unlocking the
strength from such a large coalition. In pursuit of that goal,
the training and information-sharing Committee of the task
force has been active in its first year. It has brought
together financial fraud coordinators, including the one in
Todd Jones' district, to a national training in October 2010,
bringing together a robust set of white collar professionals
from around the country to discuss trends and how to move
forward.
The Mortgage Fraud Working Group is tasked with addressing
mortgage fraud, which, as Senator Blumenthal correctly noted,
is a broad array of fraud. From loan origination fraud to
reverse mortgages to short sale schemes to builder bailouts,
loan modification scams and foreclosure rescue scams, it is a
wide array of fraud that is addressed by that group.
And mortgage fraud trends show that the fraud evolves with
the cycles of the housing market and varies by geographic
region. The working group has held regional summits around the
country with enforcement officials at the operational level.
I have seen in concrete ways how collaboration at these
summits has led to better enforcement. For example, at these
summits, representatives FinCEN and from HUD's office of
inspectors general combine their datasets in order to produce
essentially a target list of individuals who are engaging
potentially in fraud.
This serves a valuable purpose to those in the field. One
of the great challenges they face in addressing mortgage fraud
is its atomistic nature and the great prevalence of it.
In crude terms, it allows them to get the best bang for
their buck in terms of where to focus those resources to
address that problem in a targeted and efficient way.
Another area of focus for the task force is potential
fraud, waste and abuse of Recovery Act funds. Because the task
force was established at a time when these stimulus funds were
still at the stage that they were being distributed, much of
the work of that working group has focused on fraud prevention
and detection.
At the close of 2010, more than 100,000 professionals
responsible for awarding and overseeing Recovery Act fund
disbursements, as well as investigators, prosecutors and agents
were trained as part of this effort, which we believe is one of
the largest fraud prevention training efforts in history.
The task force is, similarly, focused on efforts to combat
fraud, waste and abuse with respect to the TARP program. They
have engaged in successful efforts to partner the special
inspector general of the TARP program with U.S. attorneys'
offices around the country, and there have been good results in
this area.
SIGTARP, along with other task force members, have brought
cases, including Park Avenue Bank, which was one of the--which
was the first conviction of an individual who was attempting to
defraud the TARP program of $11 million.
Another working group of the task force focuses on
securities, commodities and investment fraud, and brings
together a broad array of impressive subject matter experts, as
described by U.S. Attorney Jones.
In its first year, the working group members conducted
workshops on important issues such as the Dodd-Frank Wall
Street Reform and Consumer Protection Act, investigations and
prosecution of investment fraud schemes, and parallel criminal
and civil proceedings.
During 2010, working group members investigated and
prosecuted numerous securities and commodities fraud involving
large, complex cases against executives at the highest levels.
For example, different task force members, including the
criminal division, the U.S. Attorney in the Eastern District of
New York, as well as SIGTARP, charged Lee Bentley Farkas, who
was the Chairman of a company called Taylor, Bean & Whitaker,
for a fraud of more than $2.9 billion. That contributed to the
failures of one of the 25 largest banks in the United States
and one of the largest privately held mortgage lending
companies.
Farkas was convicted at trial on all counts in April 2011,
and is, in fact, scheduled to be sentenced this morning in the
Eastern District of Virginia.
Last, and definitely not least--and I see that I am over my
time--the task force believes that we cannot prosecute our way
out of this crisis. Public outreach, consumer financial
literacy, and assisting those to prevent themselves from being
victimized is important. We have an online consumer-based
Website, stopfraud.gov, that is designed to do that.
Thank you, Chairman. I look forward to any questions that
any of you have.
[The prepared testimony of Mr. Adkins appears as a
submission for the record.]
Senator Klobuchar. Thank you, Mr. Adkins. I think people
learned, especially 9/11, the importance of exchanging
information and having people aware of things, whether it is a
terrorist network or whether it is a white collar crime network
right here in the United States.
So I am a big fan of trying to exchange this information
and trying to get after some very sophisticated crooks. But you
know Senator Blumenthal is a former prosecutor and Senator
Grassley is certainly someone who counts the money and makes
sure the taxpayers get the bang for the buck.
So I am very focused on what we have seen in terms of
prosecutions coming out of the efforts. We understand the task
force--the U.S. attorneys' offices and the county attorneys'
offices are prosecuting those on the frontline, but the job of
the task force, I figure, is to get out all that information so
that they can do their jobs better and quicker.
According to the first year report of the task force, the
number of mortgage fraud prosecutions went up significantly in
the task force's first year. I know it is hard to quantify the
precise impact of a task force, but generally speaking, how has
the existence of the task force helped increase the number of
prosecutions?
Mr. Adkins. Thank you, Chairman. My background, as you
noted, is also as a Federal prosecutor and I am well aware that
prosecutions occur at the line level throughout the country, in
the U.S. attorneys' offices and in the field offices of the FBI
and elsewhere.
And you are correct that the task force, as U.S. Attorney
Jones mentioned, is designed to help them, that is the model,
to support them in the cases that they bring; not as an
overarching agency that would duplicate their efforts, but
rather to help enable them through cooperation, information-
sharing, training, and coordination.
The information-sharing efforts and the training efforts in
the mortgage fraud arena are very important. I don't think that
you should look to the increase in mortgage fraud prosecutions
and say that those were directly caused, each and every one, by
the task force, because that is not the model. It is a metric,
though, to see success and it is the important metric, which is
enforcement.
We want to get out there not just criminally, although that
is certainly important because it serves the most valuable
deterrent that you can have, but, also, with respect to other
tools that we can use.
As you saw in the annual report, one of the greatest
success stories of the task force has been bringing together
some of these other entities that previously had not been as
coordinated or brought into the fight in mortgage fraud.
I am talking about state attorneys general working very
closely with U.S. bankruptcy trustees, with the FTC, with the
FBI and the U.S. attorney's offices, and even within the
Department of Justice, not just criminal prosecution, but
FIRREA and very important civil enforcement that can be
brought, not to the exclusion of criminal cases, but to
complement it, because we know that we can't just criminally
prosecute all these cases away and we need to bring every tool
we have to the toolbox.
And so specific things that the task force has done, in
addition to that targeted data compilation that I described
earlier, which is very valuable to the field, we have taken
that show on the road, so to speak, to those areas that are
hardest hit around the country in mortgage fraud in order to
interface with the 94 different mortgage fraud working groups
and task forces at the operational level so that we can get
data from DC sometimes that doesn't always get to the field
directly in their hands to assist with prosecution.
Senator Klobuchar. Could you also tell me about Operation
Broken Trust, which targeted fraud against investors?
Mr. Adkins. Yes. Operation Broken Trust was an effort in
December of 2010. One of the issues that we were hearing, for
example, when the financial fraud coordinators came together in
October of last year, was that there is an incorrect perception
that investment schemes, such as Ponzis and the like, what we
often refer to and I am sure you have referred to as affinity
frauds that rely upon a level of trust and relationship between
the victim and the fraudster, that there is an incorrect
perception that when the economic tide receded, it left all
those flopping fish on the beach.
And by that, I mean all those Ponzi schemes unwound, such
as Madoff, and that there are no such schemes occurring today.
That is incorrect and we wanted to draw a focus to that in
the most powerful way we could to get into the hands of
potential victims, but even current victims who could report
fraud, that they are occurring and that it is an increasing
problem, especially as people look potentially to publicly
traded markets and look for other ways to invest their money,
through PPMs and other means.
And so we put together a snapshot, a window of 3.5 to 4
months to find how prevalent it was and to get that message
out, and we found startling results, over 120,000 victims in
cases that were brought during that period.
It's part of the outreach. It's part of the effort to reach
the public, because as I said in my opening remarks, we know we
can't just prosecute our way out of it. We need the public's
help.
Senator Klobuchar. Well, I have also found, specifically in
the white collar area--I remember when we prosecuted some
pilots for tax fraud. Once you start doing that, I think of no
other area that is quite like this, and people see examples,
suddenly, in the case of Minnesota, millions and millions of
dollars suddenly got paid into the treasury, because other
people that might have been engaging in schemes that we did not
have the information on suddenly decided to pay up.
So I think it can have not only the prevention of the
fraud, but actually can help fiscally better than any other
area that I can think of when you show the examples that you
are willing to go to bat and put people in jail.
U.S. Attorney Jones, could you just talk about some
examples from the frontline in Minnesota of some of the white
collar cases that have been particularly successful and how
many millions of dollars they involved?
Mr. Jones. Senator, we have been very busy in the district
of Minnesota, as a lot of my colleagues around the country
have, on the fraud front, and it's not always obvious.
So I think that to address Senator Grassley's concern about
slapping a label on a press release and taking credit for work
that really isn't related to the Financial Fraud Enforcement
Task Force is a misplaced notion. A lot of this work is in the
pipeline. Anyone that has been out in offices know that these
cases are complicated, they take time.
And so we have a fully stoked pipeline of fraud cases, many
of which are generated by the increased focus and the
collaboration and coordination that is going on right now as a
result of the Financial Fraud Enforcement Task Force effort.
Senator Klobuchar. Can you give me some examples of ones
that either have been finalized----
Mr. Jones. There are two examples.
Senator Klobuchar. People are in jail.
Mr. Jones. Well, you know that we have some people in
jail----
Senator Klobuchar. Yes.
Mr. Jones--from the district of Minnesota. First and
foremost is Tom Petters, who is the CEO of a corporation that
was involved in a massive Ponzi scheme, $3.5 billion ponzi
scheme. And within a period of 18 months, we went from an FBI/
IRS investigation to a full-blown trial, to a sentencing in
April of last year, where Tom Petters received the largest
fraud sentence ever of 50 years, and he is now in the custody
of Bureau of Prisons in Fort Leavenworth. And that was all done
in 18 months.
More recently, to get to the point of this collaboration
that is going on, Trevor Cook, another person who was involved
in foreign exchange that we worked very closely with the SEC
and the CFTC, in part, through the efforts of this, to not only
criminally prosecute Trevor Cook, and he received a sentence of
25 years, but also to take civil recovery action for assets,
appoint a receiver, and protect what we could recover for the
victims of his fraud.
Those are just two examples from Minnesota, but that has
been replicated across the country.
Senator Klobuchar. Thank you very much. It was a good
answer.
Senator Grassley.
Senator Grassley. Well, thank you, Madam Chairman.
This task force was created in November of 2009. Senator
Leahy and I wrote the Fraud Enforcement Recovery Act of 2009,
signed into law May of 2009.
The legislation increased the resources available to the
Justice Department to combat criminal and civil fraud. It also
provided additional resources to the FBI and the SEC.
Combating fraud was on Congress' radar before the creation
of the task force. Given that, regardless of the existence of
the task force, fraud-related crime was being investigated and
prosecuted.
Consequently, it is difficult to determine exactly what
investigations and prosecutions are directly attributable to
the task force.
So, Mr. Adkins, I would like to have you answer these
questions. And they are not accusatory, they are just trying to
get some information.
How does the task force determine what cases were
investigated and prosecuted as a direct result of the task
force? And then I will have a couple other questions.
Mr. Adkins. Well, thank you, Senator Grassley. And I should
tell you that--and I do want to thank you, also, as well as
Senator Leahy, for FERA. As you know, and I'll talk about--
hopefully, later, I will have an opportunity to talk about how
directly the extension of financial institution definitions to
non-bank lenders is a direct causal effect between that and one
of the policy proposals that FinCEN, through the task force
policy committee, has put out as a rule, which is to extend
suspicious activity reporting not just to financial
institutions, but then to extend it to those non-banking
lenders.
Your question is a good one. As I said before, my
background and my personal view of the task force is that we
need to support the AUSAs in the field, as well as the non-DOJ
staff attorneys at the SEC and the FBI agents.
The way that we determine which efforts and press releases
and announcements that we highlight through the task force is
dependent upon the executive order, which we have filtered into
different working groups.
You mentioned earlier, correctly, that there can be some
bureaucracy involved in such a broad effort. The working groups
are designed to try to address that, to try to put in place the
subject matter experts that are at the point of the spear in
those focused areas.
And so mortgage fraud, securities and commodities fraud,
Recovery Act fraud, which, as you know, relates to procurement
and grant fraud in the Recovery Act area, TARP fraud, largely
worked by SIGTARP, and certain nondiscrimination cases, those
are the areas that the task force has prioritized through the
executive order. Those are the areas we coordinate with the
financial fraud coordinators, and those are the areas that we
try to highlight and push out to get the maximum deterrent
value.
Senator Grassley. If you can answer this question. How
often do the different working groups of the task force meet?
Mr. Adkins. That is actually hard to answer. There are--it
depends on the working group. For some of them, like the
securities and commodities fraud working group, which is
chaired by Preet Bharara in the Southern District of New York,
Rob Khuzami, the director of enforcement with the SEC, David
Meister, the director of enforcement at the CFTC, as well as
Lanny Brewer, who you know well, each of them hosts meetings on
a rotating basis, and the last one was actually hosted by the
FTC up in New York a couple of weeks ago.
That group, because of its size--and as you noted, we
didn't start prosecuting fraud back in November 2009. That's a
group that has been working together for some time.
They meet regularly, typically, 2 to 3 months, but they
also have individuals who are at a lower level within those
organizations that I interface with on a weekly basis offline,
outside of those more formalized groups. I find that to be very
productive.
Other groups meet much more regularly. In the mortgage
fraud working group, they would have meetings, but they also
would hold summits around the country. They have subgroups that
would get together on particularized issues.
And so some meet on a more regular basis, every few months,
others meet much more frequently.
Senator Grassley. We have the press releases that I have
referred to. We have an annual report that I characterize as a
summarization of those press releases.
What other official work product is derived from the
activities of the task force and the various working groups?
Mr. Adkins. We put together, through the information--the
training and information-sharing committee, compilation of the
different fraud databases, fraud enforcement databases. This,
surprisingly, had not been done previously.
Amongst the alphabet soup of the Federal enforcement
family, there exists many different types of datasets, and we
put together a resource guide and got it out to the field
through the financial fraud coordinators, allowing those,
again, at the line level, getting around a bureaucratic
response, getting it to the line level, where they can form, at
the line level, those MOUs necessary to get access to that data
to help with what they do.
There are other things, like a USA bulletin that goes out
to all U.S. attorneys around the country. We have put forth
actually two separate USA bulletins that go out.
It is a resource and training guide for the field,
describing ways in which to confront particular difficult
problems, including mortgage fraud and some of the others that
I know that we've discussed.
Senator Grassley. I have a series of questions. I do not
know if we will get through all of them, but I would kind of
like to get a handle on budget and financial control.
According to your written testimony and the task force
annual report, the mortgage fraud working group has held
regional summits around the country, including Miami, Detroit,
Phoenix, Columbus, Fresno, Los Angeles. Further testimony
discusses training of attorneys and agents at the National
Advocacy Center. Your testimony also described training
material.
Despite all of these deliverables and the travel required
for these meetings, nowhere in the annual report of your
testimony is there a discussion of a budget and accountabilty
of tax dollars expended to fulfill the task force functions.
I am concerned that by not having a formal budget,
expenditures for travel could be unnecessarily high.
Question. The executive order creating the task force
states the department shall provide funding for the task force
subject to the availability of appropriation.
Is there a separate budget at the Justice Department for
the activities of the task force; and, if there is not, why
not?
Mr. Adkins. I don't know that there is a separate budget
for the task force, and I think the reason for it is the task
force model.
The task force, I think, would be ill served if it
attempted to essentially put in place--and I know you are not
suggesting this--an agency structure that would be duplicative
of the efforts that are already ongoing.
The task force model is one in which we enable those who
already are the experts--they know how to prosecute these
cases, they know how to regulate certain markets, but to put
them in places and to, frankly, co-opt some of the efforts that
are ongoing so we can take one part of the Federal family and
put it in touch with another, grab folks at the state level and
bring them in so they can work better.
You mentioned the NAC training, the National Advocacy
Center. That was originally planned--there have been several
National Advocacy Center trainings that were going to occur
anyway.
What we did was we made them better, in my view. We brought
in Neil Barofsky, the Special Inspector General of the TARP
program, to speak to the AUSAs in their trainings so they can
see a broader array of fraud resources that they can use in
their everyday lives out in the field.
That is the model. It is not so much to always create, but
to use the resources and the dedicated individuals who have
decided to be members of this effort so that we can better use
the funding that does exist amongst the Federal and state
families.
Senator Grassley. I will follow-up with some questions
later on that. I will stop for now.
Senator Klobuchar. Thank you very much, Senator Grassley.
Senator Blumenthal.
Senator Blumenthal. Thank you, Madam Chairman.
I have some questions focused particularly on gasoline
prices and the commodities markets that are related to fuel
and, soon, heating oil, which, even though now it is pretty
warm outside, will be a pressing topic pretty soon.
And as you know, the national average is close to $4 a
gallon. To be specific, I think it is about $3.54 a gallon. In
Connecticut, it is $3.92 a gallon, which is way higher than it
has been.
In my view, the trends that we have seen lately in the
markets cannot be explained solely by supply and demand, and
the creep down in those prices after some developments and
actions by the Administration and other law enforcers I think
substantiate my view that speculation and possibly illegal
manipulation of the markets is to blame, at least to some
extent.
And I welcomed and applauded the decision to create the oil
and gas price fraud working group within your task force. I
applauded and commended the Federal Trade Commission in
initiating an investigation, a wide-ranging inquiry, into fraud
and manipulation relating to gas prices at every level of the
industry.
So far, I note, with some regret, the Department of Justice
has not announced any such investigation.
So my question is, can you tell us whether the Department
of Justice has initiated any actual civil or criminal fraud
investigations into potentially illegal speculative activity in
the futures markets or any other markets that are related to
fuel?
Mr. Adkins. Thank you. The oil and gas price fraud working
group, which was established some months ago, as noted in the
title, it focuses on fraud. It's not an energy policy group or
anything like that and, as you noted, it has brought together
different partners, like the FTC, the CFTC, states' attorneys
general, those very same types of relationships that we have
tried to use to make ourselves better at fraud enforcement.
I will admit that oil and gas price fraud is not something
that is part of my personal background as a prosecutor, and so
it has been a learning experience for me, as well, which is a
good thing.
The FTC, it is my understanding, and I have seen the
announcement about their investigation into potential
anticompetitive or manipulative conduct in the wholesale oil
area. The department, as you know, does not announce
investigations, if there are any, and we aren't in a position
now to announce if there are any investigations. We typically
speak when we charge or act.
Different agencies have different standards in how they
address that. I can tell you that the department is fully
engaged in that effort. Different components, including the
antitrust division, is fully engaged, and I think that we're
playing a valuable role, especially in terms of the interface
between the Federal family and the state attorneys general, who
have very flexible authority in this area.
Senator Blumenthal. Well, let me just suggest that the
rule, as I understand it, is that the Department of Justice
does not announce investigations, but sometimes, particularly
the antitrust division, makes known its interest and, in fact,
sometimes makes known its investigations. And the very powerful
effect of the announced actions so far in bringing down prices
and convincing the speculators that they are on the wrong side
of history, on the wrong side of the markets, on the wrong side
of the bets that they are making, is of benefit to the public.
In fact, what we have seen, as Bart Chilton of the
Commodities Futures Trading Commission has said, speculation is
at an all-time high. Speculative positions are 64 percent
higher since June of 2008.
All of the indicia are there to indicate that an
investigation by the antitrust division or some part of the
Department of Justice is certainly appropriate and necessary
here.
And I understand that, as U.S. Attorney Jones said, your
task force is looking at this area from the 20,000 or 30,000-
foot level, but you certainly have the authority and, in my
view, the responsibility to drive those investigations at the
1-foot level in the Department of Justice, which is where they
should be driven.
Mr. Adkins. And I appreciate that. I think that I could
repeat what the Attorney General has said in this area, which
is that we are very aware of it. We are looking into it.
We've brought all those components and agencies and
regulators together so that we can look at this issue to pursue
any fraud, if it occurs. And that while we all understand that
there can be legitimate market forces that change the prices of
gas or any other commodity, it is an area of concern that we
want to make sure that we are doing all we can.
It is just good government to bring the folks together to
make sure we are focused on exactly the issue that you raised.
Senator Blumenthal. What is the position of the task force
on whether there should be position limit? I do not know
whether you are familiar with that issue in the Commodity
Futures Trading Commission area, but, obviously, position
limits would help diminish the power of speculators to corner
the supply in certain areas, and I believe strongly that we
should have those limits as soon as possible.
Mr. Adkins. I would have to defer to my much more
sophisticated colleagues at the CFTC and elsewhere on position
limits.
As I said before, while I have prosecuted some commodity
fraud cases, this has been a learning experience for me, as
well, in the oil and gas price area.
Senator Blumenthal. Well, I would like to suggest and
request from the task force that it give us a position on
whether there should be position limits and what other measures
and steps the Commodity Futures Trading Commission should take,
because I believe it is part of your task force; is it not?
Mr. Adkins. Correct, and a part of this individual working
group.
Senator Blumenthal. And I would request that the task force
provide the Committee with a position on that issue.
Mr. Adkins. Well, thank you. And I will definitely bring
that back to them, and I appreciate your interest in this area.
Senator Blumenthal. Thank you. Thank you very much, and
thank you both for your very good work.
Mr. Adkins. Thank you.
Senator Klobuchar. Senator Grassley.
Senator Grassley. Yes. I thank you, Madam Chairman, for
letting me go ahead of your second round.
I would like to continue with you, Mr. Adkins, along this
budget line. You have answered the first question as best you
could because of the purpose of the task force. It does not
have a budget then. So let us move on to the next question.
From what specific accounts are appropriated funds drawn
and utilized to fund the activities of the task force?
Mr. Adkins. I don't know the answer to that question either
in the DOJ or with respect to the 25 other----
Senator Grassley. Then let us leave it and you answer that
in writing. Would you?
Mr. Adkins. Very well. Thank you.
Senator Grassley. Let me go on then. Is official travel
authorized for any of these meetings; and, if so, is there a
separate budget for the travel?
Mr. Adkins. I don't believe--I believe official travel is
authorized. The reason I couldn't say for sure is that you've
got components within DOJ, for example, the antitrust division,
the civil division, the civil rights division, the criminal
division, the executive office of the U.S. attorneys, the 94
different U.S. attorney's offices.
I don't know exactly how each of them, even within DOJ,
handle it. My surmise is they do it through official travel,
because it is. Oftentimes, what we'll try to do is use, like I
said before, existing facilities. We will try to use resources
and dedicated personnel or people that are already in the
region to represent us at those types of events.
But there is, of course, official travel and cost
associated with those efforts. Oftentimes, it's in replacement
for other efforts that were going to be had, but not on such a
broad and collective level, where we're really bringing
together individuals who might be trying to strike out on their
own to do some of these efforts and do it in a comprehensive
way, with maybe a bigger target audience and a better way of
pushing it out to the field.
Senator Grassley. What I think I will do is--you might not
have the information for three or four other questions. I think
I will turn those in to you and let you answer those in
writing.
If I could go to Mr. Jones. President Obama's stimulus
program had a lot of taxpayers' money into it, into various
projects and programs across the country.
The Recovery Accountability and Transparency Board was
created as part of that law to oversee how the funds were spent
to ensure that they were not subject to fraud, waste and abuse.
The recovery board and various inspectors general have
found examples of grantees and contractors abusing Recovery Act
dollars.
For example, there was a significant fraud in the
Department of Energy's home weatherization program in Illinois,
where an audit found shoddy work and widespread fraud.
My question to you. Why is the Recovery Act working group
necessary given the existence of the Recovery Accountability
and Transparency Board, which is made up of all the inspectors
general of each agency awarded Recovery Act funds?
Mr. Jones. Well, I think keeping with the consistency of
the model, Senator, the Recovery Act working group has focused
primarily, to date, on training for state, local, and Federal
folks that are grant administrators. More than 50,000 officials
and nearly 400 agents and auditors have been spun up through
our training program, through the information-sharing, to
investigate this fraud.
And as Robb said earlier, this grant and procurement fraud
is something that we would do and be engaged in anyway. I think
what the working group does, as does the Financial Fraud
Enforcement Task Force, is it allows us to leverage our
resources in a more focused way.
And it will shift over time. We fully expect that the
Recovery Act training that investigators and auditors got will
be of use, for example, in Alabama as they start to get
resources to rebuild after the tragedies there with the
tornadoes and anyplace else that there are FEMA funds or other
Federal dollars gone into an area.
This training lasts forever and it will live beyond the
Financial Fraud Enforcement Task Force existence.
Senator Grassley. Mr. Jones, my last question would start
with the first year report from the task force, this quote.
``The establishment of the working group last year added the
full weight of law enforcement community behind the recovery
board's efforts,'' end of quote.
As a U.S. Attorney out there in the field working very much
on the frontlines to prosecute fraud, regardless of the
existence of the Recovery Act working group, would not the full
weight of law enforcement already be behind investigating and
punishing those who commit Recovery Act-related fraud; and, if
not, then why not?
Mr. Jones. Well, where we're at up in Minnesota, we have
been keeping an eye on. I can tell you the one thing that, from
a practical standpoint, that the Financial Fraud Enforcement
Task Force has done is really enhance communication between our
offices and the IGs and between the IGs and the FBI, and it has
also enhanced our communications between the IGs and our civil
divisions, and that is true in many U.S. attorney offices.
You have done a lot of work on False Claims Act legislation
throughout your career, Senator, and you, more than anyone,
understand the importance of the civil aspects of the work that
we do in our offices to recovery money from people who should
not get that money or who have committed a fraud against the
government.
And I can tell you that many U.S. attorney offices have
enhanced the resources that they have put on affirmative civil
enforcement.
Senator Grassley. Mr. Adkins, let me finish with you on
this budget item. Now, I do not necessarily agree that the task
force should not have a budget, but I wonder if it would not be
worth--well, I guess I would kind of like to ask you if you
would commit to putting together a budget for all the
activities and operations of the task force, including specific
budget line items for travel, conferences and training
materials.
Would that not be useful? And if you would not want to do
that, why would that not be a good thing to do?
Mr. Adkins. That is an interesting question and one which I
think we would be happy to explore with you. I think that any
way that we can improve what we do on the task force is
something that we should embrace.
My surmise is that there could be some difficulty with it
once you get outside of the Department of Justice. Most of my
time is spent with relationships--I would probably say slightly
more than 50 percent of the time is spent with the alphabet
soup of the Federal agencies and at the state level, and it
does become difficult to track because it is different, I
think, than some of the other task forces, like the Enron task
force that I served on and some of the others.
This is different. It is so much broader. That kind of
tracking is problematic for the task force writ large. But I
would be happy to explore that question, certainly, if it is
something that could improve the work we do and be more
efficient.
Senator Grassley. Thank you, Madam Chairman.
Senator Klobuchar. Thank you very much, Senator Grassley.
Overall, Mr. Adkins, how would you describe the level of
fraud that seems to have occurred--I think Senator Grassley was
talking about it with respect to Recovery Act funds. And where
do you see the level? Is it as much as people anticipated,
given how much money is at stake?
Mr. Adkins. Well, it is always hard to know a negative, but
certainly there have been hundreds of billions of dollars in
Recovery Act funds that have gone out and, in my view, the
level of fraud is very low in relation to that.
That's not to say that there won't be any, but I think that
great credit is deserving for the Recovery Accountability and
Transparency Board and its chairman, Earl Devaney, but also for
the IGs around the country, as well as the historic training
effort that has taken place.
You never can tell whether a fraud would have occurred but
for the training. It's hard to measure. But I believe that it
has a great effect and I believe that that working group has
brought in--there was a 4-year effort that you are probably
familiar with called the National Procurement Fraud Task Force
that was somewhat recently brought into the recovery fraud
working group.
That was done because there was some duplication and it was
just great leadership at the IG level that we want to bring to
bear so that we are poised to address the fraud if and when it
occurs, but probably more importantly to the American public,
try to prevent it from happening in the first place.
Senator Klobuchar. Mr. Jones, as we look at potential
legislation--Senator Grassley mentioned the bill that we have
to try to get more resources through fines redirected into the
white collar fraud area--can you think of any legislation that
would be helpful not only just to the task force, but to you in
your efforts to prosecute white collar crimes and fraud crimes?
Mr. Jones. Well, Senator, as you know, the department,
particularly the office of legislative affairs in the criminal
division, has routine contact with your staff, with the
Committee on Judiciary, and we have, on occasion at the AGAC,
seen proposals for legislative fixes.
Nothing particular comes to mind beyond some of the things
that are a result of Supreme Court cases, but I know that there
is a package of proposed legislation that the criminal division
has worked on with your staff and with Senator Leahy.
Nothing in particular comes to mind and I'm not going to
get myself in trouble by suggesting something.
Senator Klobuchar. I was sure we would have some ideas.
Thinking back to when you were U.S. attorney your first round,
what years was that, again?
Mr. Jones. 1998 to 2001.
Senator Klobuchar. 1998 to 2001. What do you see as the
differences now, about 10 years later, in the types of white
collar crimes that we are seeing around the country and the
approach that our government is taking to those crimes?
Mr. Jones. Well, three things Senator, and it's kind of
like Groundhog Day. The evolution of the FBI has been
absolutely amazing in 10 years to be an intelligence-based law
enforcement agency, and, at the same time, they've got
enhancements on their abilities to detect fraud sort of as a
collateral to things that they have done on the national
security front.
They have also lost capacity, because a substantial core of
the bureau, which, in a lot of districts around the country, is
sort of a main partner on fraud investigations, has somewhat
diminished because of the resourcing issue.
But that has also allowed us to do some things with the IRS
and with the IGs and look at civil enforcement on the fraud
front.
Senator Klobuchar. Part of it is, understandably, after 9/
11, a lot of the focus--I remember Director Mueller showing me
their numbers--was put on working on some of the terrorism
issues. And so that has probably contributed to some of the
changes.
Mr. Jones. The two other things that I've seen really is
the volume of information--the volume of information that is
out there because of technology and the use of the Internet as
a platform to commit frauds and communicate----
Senator Klobuchar. Over the last 10 years.
Mr. Jones. Over the last 10 years. When I left in 2001, it
wasn't--the Internet was emerging as a criminal platform, but
it is much more enhanced now and it creates a lot of challenges
with detecting fraud, with identity theft, and with unanimity
for criminals globally to try and track down individuals that
are accountable for perpetrating fraud, and that is a challenge
that we are trying our best to address.
Senator Klobuchar. Very good. And in terms of the work with
the Department of Justice through this task force and others
for coordinating, has that been enhanced, would you say?
Mr. Jones. In my personal opinion, it has, because I
remember the Corporate Fraud Task Force from 10 years ago,
post-Enron. That was kind of very much a DOJ-driven, lots of
boxes, lots of top-of-the-charts people sitting around a table
and talking great thoughts and great plans.
But this is very much one, because it is such a collection
of 25 Federal agencies and because it includes a lot of
outside-of-the-Department of Justice agencies at an operational
level, the IGs and the auditors and the folks that are actually
going to generate cases, I think makes this--one, gives it some
sustainability, because it is adaptable to emerging trends,
like oil and gas, and it also allows us to have some continuity
with operators. They are learning from each other.
That has been probably the biggest benefit that I've seen
from a U.S. attorney office perspective is the information-
sharing that goes on. Not only are we doing cases in our
district, we are also now sharing the lessons, modes of
operation, individuals nationally through the financial fraud
coordinator network, and we are also sharing some of the best
practices both in the investigation and prosecution and best
practices of the crooks, so that we can catch and get ahead of
emerging fraud trends and maybe, just maybe, cut some things
off before they emerge into a crisis level criminal justice
issue.
Senator Klobuchar. I appreciate that. I just never have
taken you as someone, from your experience in the Marines and
as a prospector, wanting to just sit around and be at meetings
thinking great thoughts, although I am sure you do, Mr. Jones.
Thank you.
Mr. Jones. Thank you, Senator.
Senator Klobuchar. Senator Blumenthal, do you have some
additional questions?
Senator Blumenthal. Just a couple of quick questions. And
thank you, Mr. Jones, by the way, for your service in the
Marine Corps, as well as as a prosecutor in the Department of
Justice.
Focusing, again, on the mortgage foreclosure issue, I
wonder if you could tell us, either Mr. Adkins or Mr. Jones,
whether the robo-signing practices that were uncovered some
months, maybe now a year ago or more, have given rise to any
criminal investigations and prosecutions.
Mr. Adkins. You are correct. I think it came to light in
late September and then increasingly into October of last year,
what is commonly referred to as the robo-signing, although
there is more to it than just that in the foreclosure
documentation issues, as you know.
The task force--I think this is a benefit. As U.S. Attorney
Jones said, there are certain things that will hopefully
outlive the task force. One that I'm most proud of and that I
think is necessary to effective enforcement at the national
level is great synergy between state and Federal enforcement
authorities.
In my experience, it's not something that we have always
done as well as we could have, and that has been a primary
focus. Because of that relationship-building that had already
taken place as part of the task force, it had a very good
platform to address this crisis, because so much of what is
involved in that area is a state issue, but there is also a
Federal issue with HUD and the FTC and the department.
And so a working group has been put together that is
focused on it. We won't discuss potential actions or
investigations, but they are very focused on it.
There has been discussion of the negotiations with certain
financial institutions and loan services.
And it is impossible to say right now what the result of
all of that will be, but certainly it is a focus. Certainly,
the department is committed to looking into it, and, in my
estimation at least, I think critical to that success is a
positive relationship between the Federal and state parties.
Senator Blumenthal. I am aware, as we all are, of the state
attorney general negotiations, but I am not aware of any
Department of Justice investigation concerning potential
criminal charges. The state attorneys general are apparently
investigating and perhaps negotiating a possible resolution of
civil claims.
But is there any consideration to potential criminal
charges?
Mr. Adkins. Well, I think as has been stated publicly
already, the department is committed to looking into this issue
and being aggressive in pursuing it.
We can't confirm criminal investigations, if there are any.
The states have very flexible authorities in this area and, as
you well know, some have criminal authority, some don't.
Some have broad authority and there are different ways in
which foreclosures take place in the different states. And so
that is an important element of what we do.
While I can't confirm the existence of a criminal
investigation, we are certainly focused on it and we certainly
are interested in continuing to pursue this matter with all the
resources that we do have.
Senator Blumenthal. Did you have anything to add?
Mr. Jones. We have to tread lightly here because of the
parameters that we're operating on about confirming
investigations. But I do think it would be fairer to say that a
number of my colleagues are very alert to the possibilities
that some of the activities might rise to the level of criminal
investigations and potentially prosecutions, and that is
dispersed throughout the 94 U.S. attorney offices.
And there are certain geographic areas of the country where
there is a higher likelihood that something could evolve into a
prosecution and there are areas that they're not. Is that
cryptic enough, Senator?
[Laughter.]
Senator Blumenthal. Well, you are understandably and
correctly, appropriately cautious.
Mr. Jones. People are paying attention to the
possibilities.
Senator Blumenthal. And the only point I would make is that
someone who signs a false affidavit that is going to be
submitted to a court, with the proper evidence, would be in
violation of Federal law and I would hope that it would be
under investigation by the Department of Justice.
Again, I want to thank you both for your very helpful and
informative testimony today and for your work in this area.
Thank you.
Mr. Adkins. Thank you.
Senator Klobuchar. Well, I want to thank both of you for
testifying, and, also, both Senator Blumenthal and Senator
Grassley for being here and sitting through the hearing and
asking some good questions.
I know that Senator Leahy would like to submit his
statement for the record, which I will do.
[The prepared statement of Senator Leahy appears as a
submission for the record.]
Senator Klobuchar. And I also want to thank Senator Leahy
for his leadership and Senator Sessions in his leadership in
this area of financial fraud.
We will leave the record for the hearing open for 2 weeks.
And I just want to thank--1 week--1 week. We are getting very
efficient in the Senate now.
We will keep the record of the hearing open for 1 week. And
with that, I want to thank both of the witnesses for your work
and your excellent testimony today.
Thank you. The hearing is adjourned.
[Whereupon, at 11:21 a.m., the hearing was adjourned.]
[Questions and answers and submission for the record
follows.]