White & Case
White Collar

President Barack Obama Establishes Interagency Financial Fraud Task Force

November 19, 2009
Darryl S. Lew, Daniel Levin, G. William Currier

Investigation and prosecution of financial crimes will likely intensify with President Barack Obama's establishment of an interagency task force to combat and deter financial fraud. Companies and particularly individuals will receive additional scrutiny in light of the task force's broad mandate and other recent legislative and administrative initiatives. Passage of the Fraud Enforcement and Recovery Act and restructuring of the Securities and Exchange Commission's ("SEC") enforcement division means that companies and individuals involved in the financial markets should be prepared for more investigations and potential enforcement proceedings by US authorities. In this heightened enforcement environment, business organizations should assess, and improve where necessary, coordination and communication across compliance functions to avoid administrative or regulatory missteps that may lead to more broad-ranging inquiries and criminal sanctions. In addition, companies are well-advised to utilize internal inquiries to gather and analyze facts necessary to assessing potential exposure and/or mounting a vigorous defense.

Demonstrating once again—as we have previously noted for our clients—that past is prologue when the government addresses the fallout from the financial crisis, on November 17, 2009, Attorney General Eric Holder, Treasury Secretary Timothy Geithner, Housing Department Secretary Shaun Donovan and SEC enforcement chief Robert Khuzami announced the establishment of a Financial Fraud Enforcement Task Force. The Department of Justice ("DOJ") will lead the Task Force's twenty-five departments, agencies and offices. The SEC, Department of Treasury and the Department of Housing and Urban Development will serve with the DOJ on the Task Force's steering committee.

The concept of an interagency task force to address financial fraud is not new. In the wake of the savings and loan crisis, President George H. W. Bush convened an interagency financial fraud task force, chaired by then-Deputy Attorney General George J. Terwilliger III, to coordinate and direct US government agency activities in response to the crisis. In 2002, the Enron and WorldCom accounting scandals prompted President George W. Bush to form the Corporate Fraud Task Force ("CFTF"), which has since overseen approximately 1,300 corporate fraud convictions, including the conviction of more than 200 chief executive officers and corporate presidents, more than 120 corporate vice presidents and more than 50 chief financial officers.1 The new Financial Fraud Enforcement Task Force, however, will bring together senior-level officials from twenty-five agencies, more than twice the number of agencies involved in the CFTF, and the new Task Force has a broader mandate than its predecessors.

"This task force's mission is not just to hold accountable those who helped bring about the financial meltdown, but to prevent another meltdown from occurring," said Attorney General Eric Holder at Tuesday's announcement, adding that the government will be "relentless in its investigation of corporate and financial wrongdoing and will not hesitate to bring charges, where appropriate, for criminal misconduct on the part of businesses and business executives."2 He specifically identified mortgage fraud, securities fraud (including traditional insider trading, Ponzi schemes and misrepresentations to investors), fraud involving federal stimulus funds and discrimination involving predatory lending practices as the intended focus of the Task Force's enforcement efforts.3

US enforcement officials expect the task force to increase coordination and cooperation among the different federal and state authorities involved in the regulation of the financial markets. SEC enforcement chief Robert Khuzami explained that "[o]ne of the vital aspects of the Task Force will be to better coordinate criminal and civil enforcement efforts."4 Such coordination has already been on the rise: in the 2009 fiscal year, more than 150 of the SEC's enforcement cases were filed in coordination with criminal charges, representing a 30 percent increase over 2008.5

All companies and individuals involved in the US financial markets should expect that creation of the Task Force will continue the trend of increased interagency cooperation and is likely to result in more aggressive investigation and prosecution of financial crimes in the months to come.

White & Case's White Collar Practice Group will continue to provide updates regarding the financial crime enforcement environment.

1 - Report to the President, Corporate Fraud Task Force (2008).
2 - Eric Holder, Attorney General, US Department of Justice, Remarks at Financial Fraud Enforcement Task Force Press Conference (November 17, 2009).
3 - See id.
4 - Robert Khuzami, Director, Div. of Enforcement, Sec. & Exch. Comm'n, Remarks at Financial Fraud Enforcement Task Force Press Conference (November 17, 2009).
5 - See id.

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