Financial Regulatory Forum

U.S. Justice Department unit to ramp up hiring as mortgage probes advance

By Guest Contributor
March 6, 2012

By Emmanuel Olaoye

NEW YORK, March 6 (Thomson Reuters Accelus) - The U.S. Justice Department plans to step up its hiring of staff to investigate abuses in the packaging of residential mortgage backed securities and to work with regulators to uncover serious fraud, a senior department official told Thomson Reuters in the wake of criticisms that Obama administration efforts were insufficient.

Last week, the former chairman of the Financial Crisis Inquiry Commission claimed that the government was not doing enough to uncover serious fraud. In a New York Times opinion piece, Phil Angelides said the 55 attorneys, agents and analysts assigned to the administration’s new mortgage packaging Working Group were not enough to uncover serious fraud. Angelides also criticized the absence of federal regulators in the Working Group. The official, who spoke on condition of anonymity citing the investigations underway, said the Justice Department was “ramping up our staffing significantly” as investigations advance and documents come in.

“At the original press conference we said this was our initial commitment. We envision substantially more personnel being devoted to [the Working Group] than just those 55. We’re going to go beyond that,” the official said. “It doesn’t make any sense to ramp up before you start getting materials in. We’re doing that now. Like I said we envision having substantially more staff than that initial number,” the official said.

He did not specify hiring targets, but the department has requested a $55 milllion increase for the fiscal year beginning in October to finance the working group. The department will focus its hiring on analysts and accountants with expertise in investigating complex financial transactions.

President Barack Obama announced the creation of the Working Group in his State of the Union speech in January. The unit was established to look into the packaging of toxic mortgages into mortgage-backed securities in the buildup to the financial crisis. Observers have criticized the government’s failure to bring criminal prosecutions against sponsors of fraudulent mortgage backed securities. They have criticized the record of officials who head the Working Group in prosecuting mortgage originators in recent years.

Also, the spotlight on the sponsors of mortgage-backed securities has raised questions about the level of coordination among the Justice Department and regulators in bringing prosecutions.

Banks have expressed concern that they could be overwhelmed by requests for information from the government and regulatory agencies conducting overlapping mortgage probes, while Angelides said close cooperation between the regulators and the working group was essential.

The senior official said the Working Group was collaborating with federal and state regulators. The unit is sharing information with the Consumer Financial Protection Bureau and the U.S. Securities and Exchange Commission on pending cases, he said. The Working Group is also looking to hire a coordinator to help organize the work done with state and federal regulators, the official said.

Subpoenas issued by the Justice Department against 11 financial institutions in January were an example of collaboration with other regulators on mortgage packaging abuse, the official said.

Said Justice Department spokesman Adora Andy, “This new working group is primarily focused on fraud in the residential mortgage-backed securities market, marshaling parallel efforts to collaborate on current and future investigations, pooling resources and streamlining processes to investigate those responsible for misconduct contributing to the financial crisis in a comprehensive way.”

“Significant efforts continue to move forward, by both federal and state authorities, and if they uncover evidence of fraud or other illegal conduct, we will pursue such conduct aggressively.”

Three banks disclosed last week that they may face charges from the SEC related to their packaging of mortgage-backed securities. JPMorgan Chase & Co, Goldman Sachs Group Inc, and Wells Fargo & Co said that they had received Wells notices from the SEC, a letter that the agency sends to defendants to inform that it is considering bringing charges against them.

The Justice Department official said the working group was conscious of the potential burdens caused by multiple investigations. “We recognize that one of the things that led to the creation of the Working Group was the idea that there are a lot of entities out there investigating overlapping conduct. We want to make sure they are working together to get the best results. We want to ensure we get together to share information. If one organization has developed leads or identified potential problems, it may be so that another entity — whether it’s the DoJ or the SEC — is best positioned to pursue a case.”

(This article was produced by the Compliance Complete service of Thomson Reuters Accelus.  Compliance Complete (http://accelus.thomsonreuters.com/solut ions/regulatory-intelligence/compliance- complete/) provides a single source for regulatory news, analysis, rules and developments, with global coverage of more than 230 regulators and exchanges.)

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