WASHINGTON (Reuters) - The Obama administration created a new task force on Tuesday to crack down on financial fraud, an increasingly important political issue after a spike in mortgage scams and big Wall Street trading scandals.
President Barack Obama signed an executive order directing the task force, led by the Justice Department, to investigate and prosecute financial crimes connected to the past year’s financial crisis and to try to deter future fraud.
The stakes are high for the administration, particularly with a weak economy, anger about huge Wall Street bonuses and outrage that securities regulators missed one of the biggest frauds in U.S. history involving Bernard Madoff, who bilked investors of as much as $65 billion in a decades-long scheme.
“We will be relentless in our investigation of corporate and financial wrongdoing and we will not hesitate to bring charges, where appropriate, for criminal misconduct on the part of businesses and business executives,” U.S. Attorney General Eric Holder told a news conference.
The administration has long pledged to be more aggressive in fighting financial crime, but has faced a few setbacks like Madoff and losing a high-profile case against two hedge fund managers accused of fraud in the early days of the crisis.
The task force replaced a similar one established by the Bush administration in 2002 after corporate scandals like the collapse of Enron Corp, the giant energy trader.
Asked how this one would be different, Holder said the “breadth” of the task force, with a wide range of federal government agencies coordinating action among themselves and with state and local law enforcement authorities.
The task force also includes the Treasury and Housing and Urban Development departments and the Securities and Exchange Commission, among other government agencies. It will hold its first meeting in the next 30 days.
TIME TO PUT PIECES TOGETHER
Asked why the administration which took office in January had not created the task force earlier as the financial crisis has ebbed, Holder said, “It took a great deal of time to put all the pieces together.”
Robert Mintz, a former U.S. prosecutor who now does white-collar criminal defense work, said, “The formation of this new task force is likely more than mere symbolism, but it may take some time before we see any tangible results.”
“While this is clearly a reaction to the public’s continued frustration with Wall Street, in the past we have seen a real impact from these types of task forces when they are targeted at specific types of crime,” he said.
Treasury Secretary Timothy Geithner said that in addition to prosecuting fraud, the financial system must also be overhauled to address the problems that created the crisis. Congress is now weighing a package of reforms.
“We can’t wait for problems to peak before we respond,” Geithner said. “We’re seeking a comprehensive financial reform to create a more stable, safe financial system and stepping up our enforcement strategy.”
He also took a swipe at the Bush administration, saying “enforcement resources were not mobilized on a major scale until extensive damage had already been done.”
No new cases were unveiled in the task force announcement.
The task force comes a week after the Justice Department lost a pivotal criminal fraud case in New York against two managers from Bear Stearns whose hedge funds collapsed at the early stages of the financial crisis. Securities regulators still plan to pursue their own charges against the two men.
“We analyze cases like that and learn from them and that analysis is underway,” Holder said. “That should not be seen in any way as something that’s going to deter us from being very forceful in going after the kinds of fraud that we alleged occurred in those cases.”
Rob Khuzami, head of enforcement at the Securities and Exchange Commission, said specialized units at the agency would focus on derivatives and securities, insider trading and market manipulation, and fraud among hedge funds and investment advisers. (Additional reporting by Lisa Richwine; editing by Philip Barbara)
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