- The Washington Times - Friday, March 20, 2009

WASHINGTON (AP) - Lawmakers appeared eager to provide fresh funding and possible new authority to law enforcement agencies pursuing fraud in the financial crisis, as government officials on Friday detailed efforts to counter rising abuses with already stretched staffs.

Mortgage fraud, which has spiked to record levels in the wake of the subprime loan collapse, is an especially intense area of focus by federal and state prosecutors. Mortgage fraud investigations by the FBI have more than doubled to over 2,000 in the current fiscal year, from 881 three years ago.

The financial distress also has brought revealed a growing number of Ponzi investment schemes that were undetected in stronger economic times _ the highest-profile being the multibillion-dollar fraud by Bernard Madoff that went on for decades.

Rep. Barney Frank, D-Mass., chairman of the House Financial Services Committee, cited “a justifiable level of anger” among a populace suffering through a recession over deficiencies in the regulatory system that allowed financial misconduct to flourish.

“We have to satisfy the American public that everything that can be done legitimately is being done,” Frank said at a hearing of the panel.

Illinois Attorney General Lisa Madigan lashed out at federal banking regulators for what she called “an abdication of meaningful oversight” of mortgage lenders during the housing boom of recent years.

“Now we are all in the challenging position of pursuing the wrongdoers after the damage is done,” Madigan said.

The Federal Reserve and Treasury Department have been blamed by a number of lawmakers and consumer advocates for lax oversight of the banking industry that was considered a factor in worsening the subprime mortgage crisis.

Frank asked officials from the Fed, Justice Department, Treasury Department, Securities and Exchange Commission and other agencies what they needed in terms of more funding or expanded legal powers “to enhance your ability to protect the public.”

Rep. Bobby Scott, D-Va., noted that the FBI is conducting about 2,000 mortgage fraud investigations with only 240 agents.

Rita Glavin, acting assistant attorney general in the Justice Department’s criminal division, said that office is “committed to adopting a proactive approach for better detecting and deterring fraud in the future.”

Nationwide enforcement sweeps against mortgage fraud brought criminal charges against more than 400 defendants last year, she said.

The mortgage industry saw a record number of fraud incidents last year, with the number of such reports in mortgage loans rising 26 percent from 2007. The recession has increased pressure on shady mortgage lenders and brokers _ as well as borrowers _ to lie on loan applications.

The FBI also has more than 566 ongoing corporate fraud investigations, including 43 cases related to the financial crisis, said FBI Deputy Director John Pistole. The mortgage and corporate fraud caseload “is straining” the FBI’s limited resources for pursuing white-collar crime, he said.

SEC Commissioner Elisse Walter said the agency’s funding hasn’t kept pace with a growing enforcement caseload involving securities and corporate fraud and a variety of investment violations.

The SEC, which has drawn heavy criticism for its failure to detect the Madoff fraud over years despite red flags raised to its staff, will have to make cuts in its operations without increased funding it is seeking from Congress, the agency’s chairman has said.

Bart Chilton, a member of the Commodity Futures Trading Commission, said separately Friday that regulators are uncovering an increasing number of Ponzi schemes in what he called “rampant Ponzimonium.”

The CFTC is investigating scores of individuals and entities linked to Ponzi schemes _ financial scams in which early investors are paid returns using money from later investors, Chilton said in remarks to a group of law students.

The Internal Revenue Service issued guidelines Tuesday that will allow tax relief and refunds for some Ponzi scheme victims on investment earnings that turned out to be nonexistent.



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