U.S. vows to root out corporate fraud

WASHINGTON (Reuters) - The U.S. Justice Department sought to assure lawmakers on Wednesday that prosecutors are rooting out mortgage and corporate fraud after Wall Street’s meltdown wiped out trillions of dollars in investments and laid bare the gaps in regulation.

But some lawmakers are not impressed.

“I, like many Americans, remain frustrated that the responsible agencies have not been able to bring more high- level crooks to account,” said Senator Edward Kaufman, a Delaware Democrat who called a Senate Judiciary Committee hearing to examine the issue.

“In the midst of the housing boom-and-bust cycle, did Wall Street executives and hedge fund managers commit financial fraud? If so, why haven’t we seen any convictions yet?” said Kaufman, who joined the Senate earlier this year to fill the seat of now-Vice President Joseph Biden.

Assistant Attorney General Lanny Breuer told lawmakers the Justice Department is combining forces with other federal and state law enforcement agencies to prosecute “high impact” cases where mortgage fraud is most acute.

Also testifying were the Securities and Exchange Commission’s chief enforcer Robert Khuzami and Kevin Perkins, assistant director of the Federal Bureau of Investigation.

All three officials said they are aggressively investigating financial fraud stemming from the U.S. mortgage crisis and housing bust to punish those responsible.

Khuzami said legislation to make the $450 trillion over- the-counter derivatives market more transparent would give SEC enforcement staff better access to information.

Bills winding through Congress would require standardized swaps to be cleared by a central clearinghouse, which stands between parties to a trade and assumes the risk if one of the parties fail.

When the law enforcers were asked if they were pursuing the credit rating agencies, Khuzami said the SEC is “focused on that area.”

“We are looking very closely at them,” Khuzami told the Senate panel.

Federal authorities have not filed a case against any of the credit agencies, which have been accused of assigning top ratings to asset-backed securities that later collapsed. Ohio has sued the three largest raters, alleging they gave false and misleading high ratings to securities they knew were risky. The largest rating agencies are McGraw-Hill Cos Inc Standard & Poor’s, Moody’s Corp and Fimalac SA’s Fitch Ratings.

The White House in November created an administration-wide task force to investigate and prosecute financial crimes connected to the past year’s crisis.

The SEC -- heavily criticized for missing Bernard Madoff’s $65 billion investment scam -- is overhauling the way it handles tips and conducts investigations.

Earlier this week, the SEC charged three former executives at now-bankrupt lender new Century Financial Corp with fraud. In another high-profile case, the SEC charged Angelo Mozilo, who built the largest U.S. mortgage lender, Countrywide Financial Corp, with securities fraud and insider trading.

The SEC also accused the operators of the Reserve Primary fund with fraud for telling investors the fund was safe before it “broke the buck” at the height of the financial crisis in 2008.

But law enforcers have also experienced setbacks.

The Justice Department last month lost a pivotal case against two Bear Stearns managers whose hedge funds collapsed in the early stages of the financial crisis. A New York jury acquitted the two men on all charges of conspiracy, securities fraud and wire fraud in what was seen as a test case for prosecuting Wall Street figures for their alleged roles in the economic meltdown.

The SEC was forced to go back to the drawing board after a federal judge blasted the agency for being too lenient on Bank of America Corp over what it had not disclosed about its purchase of Merrill Lynch.

Reporting by Rachelle Younglai; editing by Andre Grenon