[Congressional Record (Bound Edition), Volume 155 (2009), Part 3]
[Senate]
[Pages 4272-4273]
[From the U.S. Government Publishing Office, www.gpo.gov]




                        FINANCIAL FRAUD HEARING

  Mr. KAUFMAN. Mr. President, I want to bring my colleagues' attention 
to an important hearing held this past Wednesday by the Judiciary 
Committee. We have been focused on the economy over the past few weeks, 
and particularly on the recovery bill that will soon start saving and 
creating jobs.
  But there are more steps we need to take to restart our economy. One 
step is to renew confidence in our markets, by cracking down on the 
kind of criminal behavior that has contributed to our current crisis. I 
am talking about fraud in our financial markets.
  On Wednesday, Chairman Leahy convened a Judiciary Committee hearing 
on financial fraud. We heard testimony from John Pistole, Deputy 
Director of the FBI; Rita Glavin, Acting Assistant Attorney General for 
the Criminal Division; and Neil Barofsky, Special Inspector General for 
the Trouble Assets Relief Program.
  I will ask to include in the Record, following my remarks, three 
articles reporting on the hearing.
  Two things became clear at the hearing: First, that the Justice 
Department's Criminal Division, the FBI and the Special Inspector 
General are deadly serious about finding and prosecuting financial 
fraud.
  FBI Deputy Director Pistole told the committee that the agency is 
investigating 530 open corporate fraud investigations, including 38 
directly related to the current financial crisis. He said the total 
number of fraud investigations has nearly doubled, from 881 in fiscal 
year 2006 to 1,600 in fiscal year 2008.
  Second, we learned that Federal law enforcement needs additional 
resources to do so effectively.
  According to Deputy Director Pistole ``The increasing mortgage, 
corporate fraud and financial institution failure case inventory is 
straining the FBI's limited white collar crime resources.''
  The FBI's very necessary shift of resources to counterterrorism 
efforts has had a significant impact on its ability to investigate 
sophisticated financial crime.
  Currently, the FBI has only 240 agents investigating complex 
financial fraud.
  During the savings and loan crisis in the 1980s, the FBI had more 
than 1,000 agents investigating financial fraud connected to that 
scandal.
  Mr. President, it is clear we need to scale up dramatically the 
number and training of FBI agents investigating financial fraud, 
because the financial meltdown of 2008 is much bigger than the savings 
and loan crisis.
  That is why I was proud to join with Chairman Leahy and Senator 
Grassley to introduce S.386, the Fraud Enforcement and Recovery Act of 
2009.
  Mr. President, I look forward to working with Chairman Leahy and 
Senator Grassley to pass this important legislation, and I applaud them 
for their leadership.
  Mr. President, I ask unanimous consent to have the three articles to 
which I referred printed in the Record.
  There being no objection, the material was ordered to be printed in 
the Record, as follows:

                     [From CQ Today, Feb. 11, 2009]

    Spike in Fraud Investigations Taxing Law Enforcement Resources, 
                           Officials Testify

                            (By Seth Stern)

       More resources are needed to combat financial fraud, which 
     has soared amid the meltdown of financial markets, officials 
     told lawmakers Wednesday.
       FBI Deputy Director John Pistole told the Senate Judiciary 
     Committee that the agency is investigating 530 open corporate 
     fraud investigations, including 38 directly related to the 
     current financial crisis. He said the total number of fraud 
     investigations has nearly doubled, from 881 in fiscal 2006 to 
     1,600 in fiscal 2008.
       ``The increasing mortgage, corporate fraud and financial 
     institution failure case inventory is straining the FBI's 
     limited white-collar crime resources,'' Pistole said in his 
     written testimony to the committee.
       Others noted that the problem was likely to worsen as 
     criminals target funds from the financial bailout (PL 110-
     343) and the economic stimulus measure being considered by a 
     House-Senate conference (HR 1).
       ``We stand on the precipice of the largest infusion of 
     government funds over the shortest period of time in our 
     nation's history,'' testified Neil M. Barofsky, the special 
     inspector general for the Troubled Assets Relief Program. 
     ``Unfortunately, our history teaches us that spending so much 
     money in such a short period of time will inevitably draw 
     those seeking to profit criminally.''
       Patrick J. Leahy, D-Vt., the Judiciary Committee chairman, 
     and Charles E. Grassley, R-Iowa, have introduced legislation 
     (S 386) to extend federal fraud laws to cover more mortgage 
     lenders and funds expended under the financial bailout and 
     authorize the hiring of additional federal prosecutors and 
     FBI agents.
       ``If we don't address this head-on, we'll have a hard time 
     chasing taxpayer money,'' Grassley said.
       Pistole said the scale of the potential fraud dwarfs the 
     savings and loan crisis of the 1980s. He said 240 FBI agents 
     are currently involved in investigating mortgage fraud, as 
     opposed to the 1,000 agents and forensic experts who 
     investigated the savings and loan crisis.
       ``More must be done to protect our country and our economy 
     from those who attempt to enrich themselves,'' Pistole said.
       ``We're going to see demands on law enforcement really 
     increase'' with the stimulus package and financial bailout, 
     Rita M. Glavin, the acting assistant attorney general of the 
     Justice Department's Criminal Division, told the panel.
                                  ____


                     [From Newsday, Feb. 12, 2009]

                Rise in Fraud Cases Is ``Straining'' FBI

       The economic crisis has sparked an increase in criminal 
     fraud, including an ``exponential rise'' in mortgage scams 
     that is straining the FBI's resources, a leader of the agency 
     said.
       The Federal Bureau of Investigation has more than 1,800 
     open investigations into mortgage fraud, more than double the 
     number in fiscal 2006, Deputy FBI Director John Pistole told 
     a U.S. Senate hearing yesterday in Washington.

[[Page 4273]]

       The FBI also has more than 530 open corporate fraud 
     investigations, including 38 linked to the financial crisis, 
     he said.
       ``The increasing mortgage, corporate fraud and financial 
     institution failure case inventory is straining the FBI's 
     limited white-collar crime resources,'' Pistole said in 
     prepared testimony.
       Yesterday's Senate Judiciary Committee hearing focused on 
     whether there should be beefed-up enforcement to cope with 
     the economic decline. The panel's chairman, Sen. Patrick 
     Leahy (D-Vt.), is pushing legislation to authorize funds to 
     hire fraud prosecutors and investigators. The bill, backed by 
     the Justice Department, also would strengthen financial crime 
     laws.
       The 38 corporate cases linked to the financial crisis have 
     the potential to be as complex as that of Enron Corp., which 
     collapsed in 2001. The cases involve companies that 
     ``everybody knows about,'' Pistole said without naming them, 
     and include possible manipulation of financial statements, 
     accounting fraud and insider trading, he said.
       The FBI has reassigned some agents from terrorism cases to 
     financial crimes.
       The government's $700-billion Troubled Asset Relief Program 
     and the proposed economic stimulus legislation likely will 
     result in increased criminal activity, Neil Barofsky, special 
     inspector general of the TARP program, said in prepared 
     testimony.
                                  ____


                  FBI Probes 530 Corporate Fraud Cases

                          (By Devlin Barrett)

       (Washington)--The FBI is conducting more than 500 
     investigations of corporate fraud amid the financial 
     meltdown, FBI Deputy Director John Pistole told the Senate 
     Judiciary Committee on Wednesday.
       Investigators are tackling an even bigger mountain of 
     mortgage fraud cases in which hundreds of millions of dollars 
     may have been swindled from the system, he told lawmakers.
       Pistole says there are 530 active corporate fraud 
     investigations, and 38 of them involve some of the biggest 
     names in corporate finance in cases directly related to the 
     current economic crisis. Additionally, the FBI has more than 
     1,800 mortgage fraud investigations, more than double the 
     number of such cases just two years ago.
       There are so many mortgage fraud cases to investigate, he 
     said, that the bureau is not focusing on individual 
     purchasers, but industry professionals generating fraud 
     schemes that could total as much as hundreds of millions of 
     dollars. ``It is a matter of lawyers, brokers or real estate 
     professionals that are systematically trying to defraud the 
     system,'' Pistole said.
       Agents have even seen some instances of organized crime 
     getting involved in mortgage fraud, he said.
       Also appearing before the committee was Neil Barofsky, the 
     watchdog of the government's $700 billion Wall Street rescue 
     package passed last year.
       Senate Democrats are urging more spending to expand the 
     ranks of the FBI's financial fraud investigators.
       After the 2001 terror attacks, about 2,000 FBI agents were 
     moved to counterterrorism work, and Pistole said they are 
     considering moving some of them back to buttress anti-fraud 
     efforts.
       Senate Judiciary Committee Chairman Patrick Leahy, D-Vt., 
     urged the FBI and the Justice Department to put people who 
     have committed mortgage fraud behind bars. ``Most people are 
     honest,'' Leahy said. ``The ones who are not honest in this 
     field are creating economic havoc and I want to make sure 
     that we're able to go after them. ``I want to see people 
     prosecuted . . . Frankly, I want to see them go to jail,'' he 
     said.
       Barofsky, who was appointed the inspector general of the 
     ongoing financial bailout plan, suggested the best way to 
     clean up mortgage fraud is to pursue licensed professionals 
     in the industry, and make examples of them. ``They have the 
     most to lose, they're the most likely to flip, and they make 
     the best examples,'' said Barofsky, a former federal 
     prosecutor in New York.

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