firsth. year report – financial fraud enforcement task force · 2011. 6. 6. · firsth. year...

First Year Report –Financial Fraud Enforcement

Task Force

March

2011

Volume 59

Number 2

United StatesDepartment of JusticeExecutive Office for

United States AttorneysWashington, DC

20530

H. Marshall JarrettDirector

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UNITED STATES ATTORNEYS' BULLETIN

FIRST YEAR REPORT

FINANCIAL FRAUD

ENFORCEMENT

TASK FORCE

2010

Members of the Financial FraudEnforcement Task Force1

Department of Justice

Criminal Division

Civil Division

Tax Division

Antitrust Division

Civil Rights Division

United States Bankruptcy Trustees

United States Attorneys’ Offices

Federal Bureau of Investigation

United States Marshals Service

Securities and Exchange Commission

Commodity Futures Trading Commission

Federal Trade Commission

Internal Revenue Service,Criminal Investigation Division

United States Postal Inspection Service

United States Secret Service

United States Immigration and Customs Enforcement

Department of the Treasury

Office of Thrift Supervision

Office of the Comptroller of the Currency

Financial Crimes Enforcement Network

Department of Commerce

Department of Labor

Department of Housing and Urban Development

Department of Education

Department of Homeland Security

Federal Deposit Insurance Corporation

Board of Governors of the Federal Reserve System

Federal Housing Finance Agency

Small Business Administration

Social Security Administration

Recovery Accountability and Transparency Board

National Credit Union Administration

North American Securities AdministratorsAssociation

Special Inspector General for the Troubled Asset Relief Program

Offices of Inspectors General, including:Department of Justice

Department of the Treasury

Department of Housing and Urban Development

Department of Homeland Security

U.S. Postal Service

General Services Administration

Small Business Administration

National Science Foundation

Federal Housing Finance Agency

National Association of Attorneys General

National District Attorneys Association

First Year Report – Financial Fraud Enforcement Task Force

1Additional members have joined the Task Force within the past year.

1.1

Table of Contents

Table of Contents ..............................................................................................1.1

Introduction by Eric H. Holder Jr.,Chairman of the Financial Fraud Enforcement Task Force..........................2.1

Overview of the First Year by Robb Adkins,Executive Director of the Financial Fraud Enforcement Task Force............3.1

Task Force Member Contributions ..................................................................4.1

Training and Information Sharing Committee ............................................4.3

Enforcement Committee ..............................................................................4.5

Mortgage Fraud Working Group ..........................................................4.5

Recovery Act, Procurement, and Grant Fraud Working Group..........4.15

Rescue Fraud Working Group ............................................................4.19

Securities and Commodities Fraud Working Group ..........................4.25

Non-Discrimination Working Group..................................................4.47

Victims’ Rights Committee ........................................................................4.54

Appendix A. Executive Order ..........................................................................5.1

Appendix B. Financial Fraud Coordinators’ Directory......................................6.1

2.1

Chapter

Introduction byAttorney General

Eric H. Holder Jr.,Chairman of the Financial Fraud

Enforcement Task Force

First Year Report — Financial Fraud Enforcement Task Force

2.3

Introduction

Eric H. Holder Jr.Attorney GeneralChairman, Financial Fraud Enforcement Task Force

The financial crisis has impacted everyAmerican. It has presented not only fraud anddeception in the finance and housing marketsthat helped fuel the crisis, but also the potentialfor fraudulent schemes to misuse the public’sunprecedented investment in economic recovery.While we are aggressively confronting fraud bornof the financial crisis, the reality is that we cannotprosecute our way out of the situation. Instead,we must address it with an equally broad andcomprehensive enforcement response. This is themission of the Financial Fraud EnforcementTask Force.

The Financial Fraud Enforcement Task Forcewas created by President Obama in November2009 as the largest coalition ever brought to bear toconfront fraud. Its membership is broad, consistingof several Department of Justice components, theDepartment of the Treasury, the Department ofHousing and Urban Development, the Depart-

ment of Commerce, the Department of Labor, theDepartment of Homeland Security, the Securitiesand Exchange Commission, the CommodityFutures Trading Commission, the FederalDeposit Insurance Corporation, the FederalHome Finance Agency, the Financial CrimesEnforcement Network, the Federal ReserveBoard, the Federal Trade Commission, theInternal Revenue Service — Criminal Investi-gation, the Office of the Comptroller of theCurrency, the Office of Thrift Supervision, theRecovery Accountability and TransparencyBoard, the Special Inspector General for theTroubled Asset Relief Program, the U.S. PostalInspection Service, the U.S. Secret Service, feder-al inspectors general, state attorneys general andmany others. The President’s Executive Orderdirects the Task Force to focus on the full array ofcorrupt conduct presented by the financial crisis,including securities and commodities fraud, bankfraud, mail and wire fraud, mortgage fraud,money laundering, False Claims Act violations,discrimination, and other financial crimes andviolations. This far-reaching list, however, onlybegins to capture the breadth — and depth — ofthis massive interagency effort.

As the President set forth in his ExecutiveOrder, the Task Force has a clear mandate —to use the full criminal and civil enforcementresources of the federal government, along withstate and local partners, to pursue a five-partmission:

to investigate and prosecute financial crimesand other violations relating to the currentfinancial crisis and economic recoveryefforts;

to recover the proceeds for such crimes andviolations;

to address discrimination in the lending andfinancial markets;

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to enhance coordination and cooperationamong federal, state and local authoritiesresponsible for the investigation and prosecu-tion of financial crimes and violations; and

to conduct outreach to the public, victims,financial institutions, nonprofit organizations,state and local governments and agencies, andother interested partners to enhance detectionand prevention of financial fraud schemes.

To make this mission a reality, we designedthe Task Force to prioritize the types of financialfraud that affect us most during this time of eco-nomic recovery: mortgage fraud, securities andcommodities fraud, financial discrimination, andpotential frauds preying upon the response tothe economic crisis, including the funds dis-bursed through the American Recovery andReinvestment Act and the Troubled Asset ReliefProgram. We established working groups tofocus on these priority areas, bringing togethertop subject-matter experts from agencies at anoperational level to work together. Whether it iscase referrals, information sharing, case coordi-nation or public outreach, we are far more effec-tive and efficient when we combine our efforts.

I am pleased to report that the Task Forcehas responded to its broad mandate withimpressive results. As more fully detailed in thisreport, the Task Force has made great strides inits inaugural year:

The Task Force is facilitating increased investi-gation and prosecution of financial crimes andother violations relating to the current financialcrisis and economic recovery efforts, as well asthe recovery of the proceeds for such crimes andviolations. As explained in this annual report,there have been impressive criminal, civil andregulatory enforcement efforts by the manyTask Force members in 2010, with thou-sands of enforcement actions addressing a

broad array of fraud. For example, duringone week in June 2010 alone, the Task Forcemembers announced the indictment of theorchestrator of a multi-billion dollar complexfraud scheme that contributed to the failureone of the nation’s largest banks, as well as thelargest mortgage fraud sweep in history.

The Task Force is enhancing coordination andcooperation among federal, state and localauthorities responsible for the investigation andprosecution of financial crimes and violations.We have developed a comprehensive enforce-ment network by establishing FinancialFraud Coordinators in every U.S. Attorney’sOffice in the country to coordinate Task Forceefforts at the line level. We have strengthenedand expanded that network by incorporatingexisting national and regional financial fraudtask forces and increasing the number of col-laborative anti-fraud efforts at the local level,such as the 94 regional mortgage fraudworking groups and task forces around thecountry. We have armed that network withmore tools and better trained personnel bycompiling and distributing a resource guideof financial databases across enforcementagencies, holding national training confer-ences spanning the broad range of financialfraud areas, launching a website with fraudreporting and public education resourcesdrawn from the full complement of govern-ment agencies, and tracking and distributinginformation about emerging fraud trends.

The Task Force is addressing discrimination inthe lending and financial markets. During thefirst year of the Task Force, the Departmentof Justice received more referrals from theDepartment of Housing and Urban Develop-ment and others for potential discriminatoryconduct than at any time in at least 20 years.The Task Force expects that these referrals,and other enforcement actions taken by the

Introduction — Chairman of the Financial Fraud Enforcement Task Force

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Task Force members, will yield an increasednumber of cases in 2011. This would be inaddition to the millions of dollars that TaskForce members recovered for victims of dis-crimination through enforcement actionsbrought in 2010.

The Task Force is conducting outreach to thepublic, victims, financial institutions, nonprofitorganizations, state and local governments andagencies, and other interested partners toenhance detection and prevention of financialfraud schemes. Understanding that our mostpowerful tool in combating financial fraud isan informed public, the Task Force hasengaged in training and outreach efforts span-ning every type of financial fraud and reachingevery level of consumer, including governmentofficials, business professionals and private cit-izens. In the Recovery Act area alone, the TaskForce conducted one of the largest anti-fraudtraining efforts in history in order to help safe-guard Recovery Act funds from fraud, wasteand abuse. The Task Force has prioritized vic-tim assistance and launched a website thatserves as a “one-stop-shop” for the public toreport fraud and to obtain information on howto avoid becoming victims.

While we have accomplished much in the firstyear of the Task Force, our work is far from com-plete. A healthy economy and, in these times, a fulleconomic recovery, requires our continued vigi-lance in protecting American businesses and con-sumers from financial fraud. This Task Force hasrisen to the challenge and is prepared for the stilldifficult road ahead. I look forward to reporting onour continued success.


2.5

3.1

Chapter

Overview of the First Year of the Task Force


3.3

Overview

Robb AdkinsExecutive DirectorFinancial Fraud Enforcement Task ForceDepartment of Justice, Office of the Deputy Attorney General

In November 2009, the President created theFinancial Fraud Enforcement Task Force byExecutive Order. (See Appendix A). Composedof more than 25 federal agencies, regulators andinspectors general, as well as state and localpartners, it is the largest coalition ever broughtto bear in confronting fraud. And as theExecutive Order directs, the Task Force ischarged with addressing an exceptionally widearray of fraudulent activities: “bank, mortgage,and lending fraud; securities and commoditiesfraud; retirement plan fraud; mail and wirefraud; tax crimes; money laundering; FalseClaims Act violations; unfair competition; dis-crimination; and other financial crimes andviolations.”

The Executive Order directs the Task Forceto use the full criminal and civil enforcementresources of the member departments andagencies: (1) to investigate and prosecute finan-cial crimes and other violations relating to thecurrent financial crisis and economic recoveryefforts; (2) to recover the proceeds for such crimesand violations; (3) to address discrimination inthe lending and financial markets; (4) to enhancecoordination and cooperation among federal,state and local authorities responsible for theinvestigation and prosecution of financial crimesand violations; and (5) to conduct outreach tothe public, victims, financial institutions, non-profit organizations, state and local governmentsand agencies, and other interested partners toenhance detection and prevention of financialfraud schemes.

The Executive Order’s directives are reflectedin the organization of the Task Force. We haveestablished working groups composed of thesubject-matter experts in each priority area:

The Training and Information SharingCommittee, co-chaired by H. MarshallJarrett, Director of the Executive Office forU.S. Attorneys (EOUSA) of the JusticeDepartment; and James H. Freis Jr.,Director of the Financial Crimes Enforce-ment Network (FinCEN).

The Enforcement Committee

The Mortgage Fraud Working Group, co-chaired by Tony West, Assistant AttorneyGeneral for the Civil Division of the JusticeDepartment; Benjamin Wagner, U.S.Attorney for the Eastern District ofCalifornia; Sharon Ormsby, Chief,Financial Crimes Section of the FederalBureau of Investigation; Michael P.Stephens, Acting Inspector General of theDepartment of Housing and UrbanDevelopment-Office of Inspector General;and the National Association of AttorneysGeneral, represented by Attorneys GeneralTom Miller of Iowa and Rob McKenna ofWashington.

The Recovery Act Fraud Working Group,co-chaired by Christine Varney, AssistantAttorney General for the AntitrustDivision of the Justice Department;Lanny Breuer, Assistant Attorney Generalfor the Criminal Division of the JusticeDepartment; and Earl Devaney, Chair-man of the Recovery Accountability andTransparency Board.

The Rescue Fraud Working Group, co-chaired by Christy Romero, Acting SpecialInspector General for the Troubled AssetRelief Program; Christian Weideman,

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Chief Counsel for the Office of FinancialStability of the Treasury Department; andLanny Breuer, Assistant Attorney Generalfor the Criminal Division of the JusticeDepartment.

The Securities and Commodities FraudWorking Group, co-chaired by LannyBreuer, Assistant Attorney General for theCriminal Division of the Justice Depart-ment; Preet Bharara, U.S. Attorney for theSouthern District of New York; RobertKhuzami, Director of Enforcement for theSecurities and Exchange Commission(SEC); and David Meister, Director ofEnforcement for the Commodity FuturesTrading Commission.

The Non-Discrimination Working Group,co-chaired by Thomas Perez, AssistantAttorney General for the Civil Rights Div-ision of the Justice Department; MichelleAronowitz, Deputy General Counsel forEnforcement and Fair Housing of theDepartment of Housing and Urban Dev-elopment (HUD); Sandy Braunstein,Director of the Division of Consumerand Community Affairs of the FederalReserve Board; and the National Associa-tion of Attorneys General, represented byAttorney General Lisa Madigan of Illinois.

The Victims’ Rights Committee, co-chairedby EOUSA Director H. Marshall Jarrett andMary Lou Leary, Principal Deputy AssistantAttorney General for the Office of JusticePrograms (OJP) of the Justice Department.

Through the Task Force, we have put inplace a structure that draws from the collectivewisdom and expertise of the many memberagencies but is still nimble enough to adapt toemerging schemes, capture lessons learned fromone context and apply them to others, and shareinformation and training.

To further these goals, every U.S. Attorney’sOffice has established a Financial Fraud Coordin-ator to ensure that aggressive fraud enforcementat the line level is pursued in all corners of thecountry. The Financial Fraud Coordinators con-vened a national conference in mid-October inSouth Carolina, at which the participants dis-cussed Task Force priorities and how to assistline prosecutors and other partners facilitate moreeffective fraud enforcement nationwide.

In a further effort to translate enforcementgoals to a reality at the operational level, U.S.Attorneys’ Offices are participating in a growingnumber of collaborative regional anti-fraud efforts,such as the 94 regional mortgage fraud workinggroups and task forces around the country, andregional financial fraud task forces in Virginia,Connecticut, Florida and elsewhere. Going for-ward, we expect the formation and utilization ofregional efforts, which combine federal, state andlocal law enforcement officers and regulators, tocontinue to be effective.

The financial crisis is incredibly broad andthe types of fraud that contribute to and preyupon the crisis are equally broad — includingsecurities and commodities fraud, investmentscams, mortgage foreclosure schemes, andefforts to defraud economic recovery programs.The Task Force was set up to address this widearray of fraud, and it has been effective in doingso. The committees and working groups of theTask Force — the enforcement experts — haveproduced impressive results in their first year.

IMPROVED TRAINING,INFORMATION SHARING AND

COLLABORATION

The Training and Information Sharing Com-mittee has been active in its first year of supportingTask Force members and their enforcement priori-ties. In addition to organizing the National Con-

Overview – Executive Director of the Financial Fraud Enforcement Task Force

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ference of Financial Fraud Coordinators, thecommittee has helped conduct numerous train-ing courses at the National Advocacy Center inSouth Carolina, covering a variety of fraud subjects.

During its first year, all 14 committee mem-bers gave presentations to the full committeeregarding their financial fraud datasets. Based onthese in-depth presentations, the committeedeveloped and distributed across the law enforce-ment and regulatory agency communities theResource Guide for Financial Investigations, whichcurrently includes descriptions of 22 data sourcesfrom 12 Task Force member agencies that arecritical to the investigation and prosecution offinancial fraud matters. The Resource Guide willbe a valuable tool to assist in conducting finan-cial fraud investigations and prosecutions, andthe committee expects that it will expand theguide to include additional datasets in the future.

MORTGAGE FRAUD

The Mortgage Fraud Working Group istasked with combating a wide range of fraud in themortgage, finance and housing markets, includingloan modification schemes, foreclosure rescuescams, loan origination fraud, reverse mortgageschemes, short sale frauds and builder bailoutschemes. Mortgage fraud trends show that thefraud evolves with the cycles of the housing mar-ket and varies by geographic region. Accordingly,the working group has focused its efforts in dif-ferent, hard-hit regions throughout the country.

The working group has held regional summitsaround the country in Miami, Detroit, Phoenix,Columbus, Fresno, and Los Angeles. In each loca-tion, the public came together to hear from lawenforcement, victims, housing counselors, indus-try experts and others to assess the mortgagefraud issues in that community. The regionalsummits also included a closed session withregional law enforcement authorities, includingthe regional mortgage fraud working groups

and task forces, to discuss strategies, resourcesand initiatives to successfully combat mortgagefraud.

Increased efforts to combat mortgage fraudhave seen dramatic enforcement results. In thefirst year of the Task Force, the number of mort-gage fraud defendants charged by U.S. Attorneys’Offices has more than doubled from 526 in fiscalyear 2009, to 1,235 in fiscal year 2010. There wasa similar increase in the number of mortgagefraud cases charged, going from 267 in fiscal year2009 to 656 in fiscal year 2010. And the empha-sis on firm sentences for mortgage fraud followedthe same trend for 2010, with a near doubling ofthe number of defendants sentenced to morethan two, three and five years in prison. Thisincrease has coincided with a near doubling ofthe number of regional mortgage fraud workinggroups and task forces nationwide.

The Mortgage Fraud Working Group helpedincrease not just the cases charged and sentencesimposed for mortgage fraud, but also expandedthe tools and strategies used to confront mort-gage fraud. For example, from March 1, 2010, toJune 17, 2010, the group spearheaded OperationStolen Dreams, the largest mortgage fraud sweepin history. The mortgage fraud sweep was differ-ent from prior efforts not just in terms of its size,but also because it included a broad array ofenforcement actions. The operation includedcharges, convictions and sentencings against atotal of more than 1,500 criminal defendants.Civil enforcement actions were part of the sweepas well, with approximately 400 civil fraud defen-dants involved and nearly $200 million in civilrecoveries ordered. And the sweep included notjust federal prosecutions by U.S. Attorneys’Offices, but important participation by federalagencies such as the Federal Trade Commission(FTC), state attorneys general and district attor-neys, and the use of bankruptcy actions and otherenforcement means to confront fraud. Theseefforts reinforce the strength of the Task Force’s


3.5

strategy of bringing broad coalitions to bearand using all of the enforcement tools availableto us. We expect this approach to continue tobe effective.

RECOVERY ACT, PROCUREMENT

AND GRANT FRAUD

According to the Recovery Board, by theclose of 2010 the federal government hadreleased approximately $600 billion in fundsunder the Recovery Act. Notwithstanding thesubstantial volume of funds now distributed,the number of prosecutions for Recovery Act-related offenses has been relatively low.

The lack of widespread fraud to date is due insignificant part to the continuing efforts of theRecovery Board and the inspectors general, bol-stered by the working group, to prevent fraudfrom happening in the first place, through suchmechanisms as the Recovery Operations Center(ROC). The establishment of the Recovery Act,Procurement and Grant Fraud Working Groupadded the full weight of the law enforcementcommunity behind the Recovery Board’s efforts.

Because it was established at a stage whenstimulus funds had yet to be distributed in sig-nificant quantities, the working group focusedits early efforts on fraud prevention. Perhapsthe most influential work done by the workinggroup to date is the group’s fraud preventionand detection training effort. At the close of2010, more than 100,000 professionals respon-sible for awarding and overseeing RecoveryAct funds, including inspectors, agents andprosecutors, were trained as part of this effort,and these numbers are only continuing to grow.This targeted fraud prevention and detectioneffort is one of the largest in history.

These efforts were punctuated by a flagshiptraining event for agents, auditors and procure-ment and grant officers, entitled “Focus onRecovery,” which was held on November 15-17, 2010, in Philadelphia. The Conferenceincluded speakers from the highest levels of theJustice Department and inspectors generalcommunity, as well as elected officials, includ-ing the Vice President of the United States.The conference was a tremendous success,attracting well over 500 attendees.

As we enter 2011, a critical foundation for theworking group is the enforcement frameworkpreviously established by the National Procure-ment Fraud Task Force (NPFTF), which hasnow been merged into the working group, bring-ing together the community of inspectors gener-al with the institutional knowledge of how to pre-vent and investigate procurement and grantfraud. The expertise that these inspectors generalbring to the table will be of tremendous benefitfor the working group as it moves forward in theyear ahead.

TARP-RELATED FRAUD

ENFORCEMENT

The Rescue Fraud Working Group is focusedon the detection of fraud, waste and abuse, andincreasing the robust and aggressive prosecu-tion of crimes related to the Troubled AssetRelief Program (TARP). The working grouphas labored collectively to improve coordinationand information sharing among agenciesaddressing rescue fraud, to enhance civil andcriminal enforcement efforts, and to increasetraining and outreach opportunities for memberagencies.

The working group made great progress inachieving these goals, including partneringthroughout the country with working groupmembers as well as state and local agencies to


3.6

conduct investigations and to engage in outreachactivities to familiarize authorities with SIGTARPresources and working group priorities.

The working group’s efforts have translated tosignificant results within its first year. For exam-ple, on June 15, 2010, the Justice Department’sCriminal Division and the U.S. Attorney’s Officein the Eastern District of Virginia, working inpartnership with SIGTARP and other TaskForce members, charged Lee Bentley Farkas,former chairman of Taylor, Bean & Whitaker(TBW), for his role in a more than $2.9 billionfraud scheme that contributed to the failures ofColonial Bank and TBW. The scheme involved,among other things, an attempt to steal $553 mil-lion from TARP. Farkas was convicted on allcounts in April 2011.

In another significant rescue fraud enforce-ment milestone, on October 8, 2010, CharlesAntonucci, the former president and CEO ofPark Avenue Bank, pleaded guilty in U.S. DistrictCourt for the Southern District of New York tosecurities fraud, making false statements to bankregulators, bank bribery and embezzlement ofbank funds. Antonucci attempted to steal $11 mil-lion of TARP funds by, among other things, mak-ing fraudulent claims about the bank’s capital posi-tion. With his guilty plea, Antonucci became thefirst defendant convicted of attempting to stealfrom the taxpayers’ investment in TARP.

In the year ahead, the working group intendsto continue to engage in collaborative enforce-ment efforts and outreach, with the goal of con-tinuing to protect TARP funds from fraud,waste and abuse.

SECURITIES, COMMODITIES AND

INVESTMENT FRAUD

The Securities and Commodities FraudWorking Group (SCFWG) brings together animpressive array of subject-matter experts in theenforcement of securities, commodities, corporateand investment frauds. Although many membersof the SCFWG have a long history of collabora-tion, through the working group they have formednew initiatives, information-sharing efforts andtraining programs.

In the first year, SCFWG members conductedworkshops on and discussed a number of impor-tant issues related to securities and commoditiesfraud enforcement, including the Dodd-FrankWall Street Reform and Consumer ProtectionAct, the investigation and prosecution of invest-ment fraud schemes, parallel criminal and civilproceedings, and the use of SEC administrativeproceedings.

Apart from the formal meetings of the work-ing group, SCFWG representatives communicateregularly to coordinate on specific investigationsand prosecutions, as well as relevant policies.SCFWG members also participate in regionaland state cooperative efforts, such as the VirginiaFinancial and Securities Fraud Task Force; theConnecticut Securities, Commodities and InvestorFraud Task Force; and the South Florida Securitiesand Investment Fraud Initiative.

The SCFWG members also have been activein public awareness and education. For example, tohelp people affected by the economic downturn,the FTC created ftc.gov/moneymatters, a websitewith information about avoiding scams, managingmoney and dealing with debt. As part of theDelivering Trust Campaign, the U.S. PostalInspection Service developed a fraud preventionbrochure with additional fraud prevention andawareness tips and mailed it to every household inthe United States.


3.7

During 2010, SCFWG members investigat-ed and prosecuted numerous significant securi-ties, commodities and other investment frauds.The following are just a few of the many impres-sive enforcement results in 2010:

As discussed above, in June 2010, theCriminal Division and the U.S. Attorney’sOffice for the Eastern District of Virginia, inpartnership with other Task Force members,charged Lee Bentley Farkas with, amongother things, securities fraud in connectionwith his role in a more than $2.9 billionfraud scheme that contributed to the failuresof one of the 25 largest banks in the UnitedStates and one of the largest privately heldmortgage lending companies. Subsequently,Farkas was convicted by a jury on all counts.

In April 2010, the SEC filed chargesagainst Goldman Sachs & Co. and one ofits employees, Fabrice Tourre, allegingfraud in connection with the marketing of asynthetic collateralized debt obligation(CDO). On July 20, 2010, the court entered aconsent judgment in which Goldman agreedto pay $550 million to settle the charges. TheSEC’s litigation continues against FabriceTourre.

On April 8, 2010, Thomas J. Petters wassentenced to 50 years in prison, one of thelongest financial crimes-related sentencesin history, for engaging in $3.4 billioninvestment fraud that harmed hundreds ofinvestors. In addition, lengthy prison termswere secured against Petters’ co-conspirators.This case was the largest fraud case everprosecuted in the District of Minnesota.Members of the SCFWG continue to inves-tigate other individuals and companies relatedto the investment scheme.

The CFTC filed 57 enforcement actions inFiscal Year (FY) 2010, representing a 14

percent increase over the number of cases filedin FY 2009. During this period, the CFTCobtained judgments ordering the payment ofmore than $200 million in civil monetarypenalties, restitution and disgorgement.During FY 2010, the number of investiga-tions opened by the CFTC increased 66 per-cent from the prior fiscal year.

On December 22, 2010, the FTC filed suitagainst 10 individuals and 61 corporationsallegedly responsible for an Internet schemethat caused consumers to lose more than$275 million. The scheme lured consumerswith allegedly false promises of governmentgrants or money-making programs and, at itsheight, ensnared 15,000 consumers per day.

In mid-December 2010, members of theSCFWG engaged in Operation BrokenTrust, a nationwide three-and-a-half montheffort to focus on direct-to-investor invest-ment frauds, exposing the widespread preva-lence of such schemes. The operation involvedfraud schemes that harmed more than 120,000victims throughout the country and causedmore than $8 billion in losses.

EFFORTS TO COMBAT

DISCRIMINATION IN THE HOUSING

AND FINANCE MARKETS

The Task Force’s Non-Discrimination Work-ing Group focuses on financial fraud and otherunfair practices directed at people or neighbor-hoods based on race, color, religion, national ori-gin, sex, age, disability or any other basis prohib-ited by law. These practices take many forms,including charging minorities higher prices forcredit, providing less favorable financial servicesto minority neighborhoods and steering minori-ties to more expensive loan products.


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Throughout 2010, the members of the work-ing group came together to discuss enforcementissues, to consider potential improvementsthrough rulemaking and to sponsor outreachevents for the public, enforcement authorities,housing counselors and industry representatives.

Again, increased collaboration has helpedimprove enforcement. In the first year of the Non-Discrimination Working Group, there was anincrease in enforcement and in the number ofinvestigations. In 2010, the bank regulatory agen-cies and HUD referred more matters involving apotential pattern or practice of discrimination tothe Department of Justice than at any time in atleast the last 20 years. The bank regulators andHUD combined referred 26 matters to theDepartment of Justice involving possible dis-crimination on the basis of race or national ori-gin, which is more than twice as many as in theprevious year.

Beyond increased information sharing andreferrals, the working group members have alsopursued significant enforcement actions. Forexample, in March 2010, the United States filed afair lending complaint and consent order resolv-ing United States v. AIG Federal Savings Bankand Wilmington Finance Inc., in which two sub-sidiaries of AIG agreed to pay more than $6million to resolve allegations that they engagedin a pattern or practice of discrimination againstAfrican American borrowers, and agreed toinvest at least $1 million in consumer financialeducation.

UPHOLDING THE

RIGHTS OF VICTIMS

Last, but certainly not least, is the Task Force’sVictims’ Rights Committee (VRC). The VRC’sprimary purpose is to address the needs and rightsof victims of financial fraud. Accordingly, thecommittee has concentrated its efforts in threeareas: (1) public awareness and education through

the launch of a public website; (2) training on vic-tims’ rights and services; and (3) focusing on resti-tution as a priority in federal prosecutions.

During its first year, the VRC has worked tomeet its goals by developing website content,training materials and legislative improvementsaimed at addressing the needs and rights of finan-cial fraud victims. The committee took the leadin establishing the Task Force’s public website,www.stopfraud.gov, which was launched at a cere-mony commemorating National Crime Victims’Rights Week. The website is an invaluableresource for members of the public, and containsdescriptions of a wide variety of financial scamsand information on how best to avoid becominga victim of financial fraud. Beyond establishingthe website, the VRC has also conducted numer-ous training sessions at national training events,and is currently working to develop an exportabletraining module that can be used by investiga-tors, prosecutors and victim service providers toimprove their awareness of and response tofinancial fraud victims.

Please visit www.StopFraud.gov to follow futurefraud enforcement efforts around the country,obtain information on how the public can protectthemselves from and report fraud, or to learn moreabout the Task Force.The following section of thisreport highlights some of the significant enforce-ment, outreach, training and initiatives of the TaskForce members in 2010.


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4.1

Chapter

Task Force MemberContributions


4.3

TASK FORCE MEMBER

CONTRIBUTIONS

TRAINING AND INFORMATION

SHARING COMMITTEE

INTRODUCTION

The Training and Information SharingCommittee (TISC) is co-chaired by theDepartment of Justice (DOJ), Executive Officefor U.S. Attorneys (EOUSA), represented byDirector H. Marshall Jarrett and the FinancialCrimes Enforcement Network (FinCEN), rep-resented by Director James H. Freis Jr. Themembership of the TISC consists of numerousfederal organizations and agencies including theDOJ’s Criminal, Civil, Antitrust and Civil RightsDivisions; the Attorney General’s AdvisoryCommittee; the Commodity Futures TradingCommission (CFTC); the U.S.Trustee Program;the FBI; the Internal Revenue Service-CriminalInvestigation (IRS-CI); DOJ’s Office of JusticePrograms (OJP); the Recovery Accountabilityand Transparency Board (RATB); the Securitiesand Exchange Commission (SEC); and theOffice of the Special Inspector General for theTroubled Asset Relief Program (SIGTARP).The primary purpose of the TISC is to formu-late policy and to support the various Enforce-ment Committee Working Groups of the TaskForce in the areas of training and informationsharing.

OUTREACH AND INITIATIVES

To date the TISC has met a total of six timesand each meeting has consisted of participatingagencies briefing the committee membersregarding the data sets they maintain and utilizeto perform their law enforcement or regulatoryfunctions. The meetings also involved in-depthdiscussions dedicated to exploring training

opportunities that will best leverage the substan-tial resources of the broad Task Force member-ship. During its first year, the TISC heard brief-ings from all 14 committee members regardingtheir datasets. These presentations generallyincluded a description of the type of informationstored in the pertinent databases, how that infor-mation is used as part of the agency’s mission andthe means by which outside agencies can obtainaccess.

In addition to learning about the differentdatabases utilized by committee members, theTISC also heard from member agencies whomaintain resources dedicated to the tacticalanalysis of financial database information. Thesepresentations included information on the FBI’sFinancial Intelligence Center, the RecoveryAccountability and Transparency Board’s sophis-ticated financial tracking and fraud detectiondatabase at the Recovery Operations Center aswell as information from DOJ’s Deputy Directorfor the National Information Exchange Modelregarding the information sharing tool N-DEXand OneDOJ. Based on these in-depth presenta-tions from the committee members regardingtheir most useful databases, the committee decid-ed to develop and distribute across the lawenforcement and regulatory agency communitiesa publication that identifies and describes thefinancial fraud data sets managed by Task Forcemember agencies that are critical to the investiga-tion and prosecution of financial fraud. In the fallof 2010, the TISC completed the Resource Guidefor Financial Investigations, which currentlyincludes descriptions of 22 data sources from 12agencies and was first disseminated at theFinancial Fraud Coordinators’ Conference inOctober 2010. The committee believes that theResource Guide will be a valuable tool to assistmembers of the Task Force in conducting finan-cial fraud investigations and prosecutions, andintends to further develop and refine the ResourceGuide over time as new databases are developedand as additional entities join the Task Force.

4.4

The TISC has also been exploring various on-going information sharing efforts undertaken byagencies and entities outside of the committee.Among other presentations, the TISC has beenbriefed by: the Institute for IntergovernmentalResearch regarding Regional InformationSystems Sharing (RISS); the Federal TradeCommission (FTC) regarding ConsumerSentinel; the Conference of State BankingSupervisors regarding the financial informationthey maintain and utilize; and the NationalWhite Collar Crime Center concerning theirmost recent statistics compiled on financialfraud. The TISC co-chairs also met with theOffice of Management and Budget, ChiefInformation Officer, and his former Chief ofArchitecture, to learn about their efforts togather information on various ongoing datasharing projects across federal, state and localgovernments. The TISC will continue to reviewthe various information sharing efforts takingplace across the government to ensure that TaskForce members are aware of what valuable datasources are available in the fight against finan-cial fraud and to identify potential redundanciesthat may be addressed in the future.

TRAINING AND COORDINATION

As conducting training is one of TISC’s coremissions, it is not surprising that the bulk of theCommittee’s efforts were focused in this areaduring the Task Force’s first year. From con-ducting national training courses to collaborat-ing with agencies within and outside of the TaskForce, the TISC had many accomplishments inthe area of training and coordination in 2010,including:

Nationwide Training Conferences: As one ofthe Co-Chairs of the TISC, EOUSA conductsa significant amount of training for both attor-neys and agents at the National AdvocacyCenter (NAC) in Columbia, South Carolina.During calendar year 2010, EOUSA organizedthe Mortgage Fraud Task Force Conference on

March 2-4, 2010, which brought together bothstate and federal prosecutors from each of the 75regional state/federal mortgage fraud task forcesand working groups in which U.S. Attorneys’Offices (USAOs) participated at that time. Thepurpose of the Conference was to allow theregional task forces to share and refine best prac-tices and to learn from one another’s challengesand successes. A general mortgage fraud semi-nar was held at the NAC in May 2010, and theWhite Collar Crime Seminar took place in July2010. The TISC also helped organize theOctober 2010 Financial Fraud Coordinators’(FFC) Conference at the NAC, which wasattended by the FFCs from nearly every districtin the country.

Pursuing Additional Training OpportunitiesWith Task Force Partners: The TISC, in coor-dination with EOUSA’s Office of LegalEducation, also made a number of requestsfor additional financial fraud courses at theNAC for prosecutors and investigators for fiscalyear 2011. Those requested courses includedmortgage fraud, bank and securities fraud,mortgage fraud for auditors, bankruptcy fraudand others. The TISC has also been in con-tact with the Federal Law EnforcementTraining Center (FLETC) to determinehow best to partner with other Task Forcemembers to prepare financial fraud trainingmaterials that can be used to train auditorsand agents from around the country. Further,the TISC has initiated efforts to gatherexisting mortgage fraud training materialsfrom the USAOs and law enforcement agen-cies in order to create a consolidated singletraining resource that can be easily dissemi-nated to prosecutors and agents throughoutthe nation.

Use of Multi-Media To Enhance Training: Inaddition to offering courses at the NAC,EOUSA operates the Justice Television Net-work, which provides training opportunities forAssistant U.S. Attorneys via the internet. In

Task Force Members Contributions

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November 2009, a fraud training programcalled, “Mortgage Fraud Basics,” was madeavailable on JTN. An additional video produc-tion, “Mortgage Fraud Rescue Schemes,” willfollow in calendar year 2011.

National Outreach to Line Prosecutors: TheTISC assisted in the gathering and editing ofarticles for the September 2010 issue of theUnited States Attorneys’ Bulletin entitled“Financial Fraud.” The Bulletin is issued sixtimes per year and is made available electroni-cally to all USAOs throughout the country. Acompanion issue containing this Annual Reportwill be published and distributed in 2011.

A LOOK AHEAD

The TISC will pursue a number of activitiesto enhance training and information sharing forTask Force members. More specifically, thecommittee will seek to develop a mechanism bywhich members can post their upcoming train-ing sessions and modules in a platform accessi-ble to Task Force members and the law enforce-ment and regulatory community at-large. Thecommittee will also meet with other organiza-tions, such as those agencies which chaired sim-ilar committees as part of the National Procure-ment Fraud Task Force, to learn more aboutinteragency efforts related to information shar-ing and to identify the strategies that willenhance the work of the Task Force. In order tofurther increase awareness and to facilitategreater information sharing among Task Forcemembers, the committee will also continue toinvite other working group members to partici-pate in TISC meetings. The committee will alsoexpand participation in the Resource Guide forFinancial Investigations to include new membersof the Task Force. Lastly, the TISC will developa quarterly newsletter in order to provide moreregular updates to all Task Force members regard-ing the work of the overall Task Force.

ENFORCEMENT COMMITTEE

The Enforcement Committee, through itsfive subject-matter working groups, is taskedwith providing collaborative enforcement inpriority areas of financial fraud: mortgage fraud,securities and commodities fraud, fraud relatedto the Recovery Act and other procurement andgrant fraud schemes, fraud related to theTroubled Asset Relief Program, and discrimina-tory conduct.

Mortgage Fraud Working Group

INTRODUCTION

The Mortgage Fraud Working Group(MFWG) was created in November 2009 pur-suant to the President’s Executive Order estab-lishing the Financial Fraud Enforcement TaskForce. The MFWG is co-chaired by: theDepartment of Justice’s (DOJ) Civil Division,represented by Assistant Attorney GeneralTony West; the Attorney General’s AdvisoryCommittee, represented by U.S. AttorneyBenjamin Wagner of the Eastern District ofCalifornia (EDCA); the FBI, represented bySharon Ormsby, Chief of the Financial CrimesSection; the Department of Housing and UrbanDevelopment-Office of the Inspector General(HUD-OIG), represented by Acting InspectorGeneral Michael P. Stephens; and the NationalAssociation of Attorneys General, represented byAttorneys General Tom Miller of Iowa and RobMcKenna of Washington. The membership of theMFWG consists of numerous federal componentsand agencies including DOJ’s Criminal andCivil Rights Divisions, the Executive Office forU.S. Attorneys (EOUSA), the Executive Officefor U.S.Trustees (EOUST), the Department ofTreasury Financial Crimes Enforcement Network(FinCEN), the Internal Revenue Service-Crim-inal Investigation (IRS-CI), the Federal Deposit


4.5

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Insurance Corporation (FDIC), the Federal TradeCommission (FTC), the Federal HousingFinance Administration (FHFA), the Securitiesand Exchange Commission (SEC), the SpecialInspector General of the TARP (SIGTARP), theTreasury Department’s Office of FinancialStability-Antifraud Unit, the U.S. Postal Inspec-tion Service (USPIS), and the U.S. Secret Service(USSS).

The primary purpose of the MFWG is toincrease enforcement in the area of mortgagefraud through greater coordination among lawenforcement agencies, to develop and shareeffective enforcement strategies and regulatoryactions and to engage in community outreachand training. As discussed more fully below, todate the MFWG has worked to expand andinvigorate the existing local multi-agency mort-gage fraud task forces and working groups locat-ed in U.S. Attorneys’ Offices around the coun-try, to increase both criminal and civil enforce-ment actions by federal agencies in the nearterm, and to increase training and otherresources available to federal, state and localenforcement agencies going forward.

Demonstrating the effectiveness of theJustice Department’s emphasis on combatingmortgage fraud, including the enforcementand public outreach efforts of the workinggroup, mortgage fraud prosecutions across theU.S. Attorneys’ Offices showed a markedincrease in both the volume of cases charged aswell as in the severity of the sentences imposedduring the Task Force’s first year (See Table 1,page 4.7).


At its initial meeting in December 2009, theMFWG discussed the role of the member agen-cies regarding the mortgage fraud problem andheard presentations from several members

regarding existing enforcement actions. Thismeeting also laid the groundwork for conduct-ing regional mortgage fraud summits, organiz-ing nationwide enforcement efforts and provid-ing additional training on how to combat mort-gage fraud.

Presentations from Affected IndustryRepresentatives

The MFWG convened a meeting to hearpresentations from representatives of the bankingindustry, a national appraisers association, a non-profit consumer advocacy group and others. Thepresenters discussed industry reactions to thehousing crisis, stepped-up enforcement effortswithin the real estate and mortgage financeindustries, and the effect of the enactment ofthe S.A.F.E. Act on industry practices. Thegroup also heard from the non-profit entityNeighborWorks regarding the national LoanModification Scam Prevention Network.

Regional Mortgage Fraud Summits

In addition to the meeting involving nationalindustry representatives, the MFWG heldregional mortgage fraud summits in areas wherethe mortgage fraud problem is particularlysevere. The regional summits were intended to:highlight the nature of the mortgage fraudproblem; learn more about the specific nature ofmortgage fraud and emerging trends in differ-ent parts of the country; and help coordinateand encourage law enforcement agencies towork together.

Miami, Florida (February 24, 2010)

On Febuary 24, 2010, the first regionalsummit was held at the U.S. Attorney’s Officefor the Southern District of Florida in Miami.All MFWG co-chairs attended, as did RobbAdkins, Executive Director of the Task Force;


4.6

Kenneth Donohue, HUD Inspector General;Cindy Guerra, South Florida Deputy AttorneyGeneral; James H. Freis Jr., FinCEN Director;Karen Spangenberg, Deputy Assistant Directorfor the Criminal Division of the FBI; U.S.Attorney Jeffrey Sloman of the Southern Districtof Florida; and Karin Hoppmann, ExecutiveU.S. Attorney for the Middle District ofFlorida. The event was attended by representa-tives of affected industries, real estate profes-sionals, law enforcement and the public. Amorning session consisted of two panels ofexperts who discussed the community impact ofmortgage fraud and recent trends. An afternoonsession consisted of a two-hour meeting withfederal, state and local law enforcement repre-sentatives, at which the group discussed bestpractices, the use of FinCEN and HUD-OIGdata, coordination and enforcement actions.

Phoenix, Arizona (March 25, 2010)

The second regional summit was held at theU.S. Courthouse in Phoenix, on March 25, 2010.All MFWG co-chairs attended, as did Task ForceDirector Robb Adkins; Michael Stephens, HUDDeputy Inspector General; Sharon Ormsby, Chief

of the Financial Crimes Section of the FBI; SusanSegal, Chief Counsel of the Arizona AttorneyGeneral’s Office, Public Advocacy Division; andU.S. Attorney Dennis Burke of the District ofArizona. Notably, U.S. Attorney General EricHolder and Arizona Attorney General TerryGoddard were also present.

Two panels discussed mortgage fraud trendsin Arizona and the impact on communities andvictims. A two-hour meeting was held with fed-eral, state and local law enforcement representa-tives, at which FinCEN and HUD-OIG madepresentations, and the U.S. Trustee addressedthe group. There was also discussion of localtask force activities, best practices and upcom-ing enforcement actions.

Detroit, Michigan (April 23, 2010)

A third mortgage fraud summit was held onApril 23, 2010, in the U.S. Courthouse in Detroit.All of the co-chairs participated along with TaskForce Director Robb Adkins; David Tanay, Chiefof the Criminal Division in the Michigan AttorneyGeneral’s Office; U.S. Attorney Barbara McQuadeof the Eastern District of Michigan; James H. Freis


4.7

Mortgage Fraud Charging Statistics

Mortgage Fraud Sentencing Statistics

Imprisoned1-12 months




Imprisoned61+ months

FY 2009 41 43 26 44 37

FY 2010 87 91 60 73 73

DefendantsCharged

CasesFiled

DefendantsTerminated

CasesTerminated

DefendantsGuilty

FY 2009 526 267 254 106 235

FY 2010 1,235 656 577 303 533

Table 1.

Jr., FinCEN Director; and other officials. At theDetroit summit, the MFWG again heard fromindustry and community representatives regard-ing the impact of mortgage fraud.The membersof the working group also held a closed-door ses-sion in the afternoon to discuss coordinationbetween federal, state and local law enforcementin the area of mortgage fraud.

Columbus, Ohio (June 2, 2010)

A regional, state-wide mortgage fraud summitwas held on June 2, 2010, at the Ohio SupremeCourt, in Columbus.The summit was arranged bythe U.S. Attorneys’ Offices for the Southern andNorthern Districts of Ohio, and was attended byU.S. Attorneys Carter Stewart and SteveDettelbach and Ohio Attorney GeneralRichard Cordray, along with Task Force DirectorRobb Adkins.The Ohio summit included panelsregarding mortgage fraud trends, as well as a panelthat included community representatives. Thesummit also included a closed-door session in theafternoon regarding ongoing law enforcementefforts to combat mortgage fraud.

Fresno and Los Angeles,California (September 29-30,2010)

The MFWG held another pair ofsummits in California, first in Fresnoon September 29, 2010, and then inLos Angeles on September 30, 2010.All of the MFWG co-chairs attend-ed, as well as Task Force DirectorRobb Adkins. U.S. Attorney AndréBirotte of the Central District ofCalifornia attended the Los AngelesSummit. At each of these summits,the working group again heard fromindustry and community representa-tives regarding the devastating impactof mortgage fraud. In the afternoon,the working group held additional

meetings with federal, state and local officialsregarding various law enforcement matters relat-ing to mortgage fraud.

Operation Stolen Dreams

From early to mid-2010, the working groupdevoted considerable attention to launching anational mortgage fraud enforcement sweep.Thesweep, called Operation Stolen Dreams, lastedfrom March 1, 2010, to June 18, 2010. Duringthat period, the MFWG worked with federalinvestigative agencies, U.S. Attorneys’ Offices,federal civil enforcement agencies and stateattorneys general to maximize federal, state andlocal criminal mortgage fraud enforcementactions and civil enforcement actions.

On June 17, Attorney General Eric Holder,FBI Director Robert Mueller, HUD InspectorGeneral Ken Donahue, and other law enforce-ment representatives announced the results ofthe operation. The sweep surpassed the resultsof the 2008 Malicious Mortgage Operationand resulted in the following numbers:


4.8

Attorney General Eric Holder speaks at the MFWG regional summiton March 25, 2010, in Phoenix; in back, left to right, are U.S. AttorneyBenjamin Wagner (EDCA), AAG Tony West, Arizona AttorneyGeneral Terry Goddard, U.S. Attorney Dennis Burke (AZ), andHUD-OIG Deputy Inspector General Michael Stephens.

CRIMINAL CASES:

Total Number of Arrests: ..........................525

Total Number of Info/Indictments: ..........863

Total Number of Complaints: ..................172

Total Number of Convictions: ..................391

Total Number of Sentencings: ..................245

Total Number of Defendants Charged,

Convicted, or Sentenced ......................1,517

Total Estimated Loss Amount: ..$3.05 billion

CIVIL CASES:

Approximate Number of Defendants: ......395

Total Number Civil Enforcement Actions: 191(including cease and desist actions)

Total Recovered: ......................$196.7 million(including judgments pending approval or suspended and bankruptcy cases)

In addition to the national announcement, anumber of U.S. Attorneys’ Offices throughoutthe country held regional events with federal,state and local partners, to announce the localresults of the operation.

Public Outreach

The MFWG, in conjunction with the fullTask Force, has also engaged in significant pub-lic outreach efforts to help combat mortgagefraud. In particular, the Task Force’s website atStopFraud.gov serves as a one-stop site forAmerican consumers to learn how to protectthemselves from fraud and to report fraud wher-ever — and however — it occurs. The websitecontains fraud reporting resources from numerousagencies, including the FTC, HUD, and the U.S.Trustee Program.The website is a valuable source ofinformation regarding mortgage fraud. The TaskForce has also partnered with Fannie Mae, FreddieMac, the Lawyer’s Committee and Neighbor-

Works America to support a consumer-friendlywebsite, www.PreventLoanScams.org, which sup-ports national, state and local law enforcementefforts to fight mortgage fraud. The website pro-vides an accessible complaint form that can befilled out online and then entered into a nationaldatabase that serves as a nationwide clearinghouseand destination for loan modification scam infor-mation on complaints filed, laws and regulations,and enforcement actions.

Policy Sub-Group

A policy sub-group was established to collec-tively initiate cross-agency recommendations forpolicy, procedure, regulation and law changesrelated to reducing the risk of fraud in the mort-gage industry and to improving the effectivenessof anti-fraud measures and investigations. Agencyrepresentation includes HUD-OIG, FTC, USSS,FinCEN, Treasury, DOJ, HUD, and FHFA.Projects initiated to date are: FinCEN SuspiciousActivity Report (SAR) digital format reportingrequirements; use of FHFA “one-off ” data fromFannie and Freddie; false statement warnings onmortgage documents; and SAR reportingrequirements for non-financial institution mort-gage lenders and brokers. In another policy devel-opment, the FTC promulgated the MortgageAssistance Relief Services Rule, which prohibitsthe advance payment for mortgage assistance reliefservices as well as deceptive conduct.


The MFWG has also devoted significantresources to train law enforcement in the area ofcombating mortgage fraud, as well as to increasecollaboration within the Department of Justice toensure maximum utilization of law enforcementresources. Additionally, the working group hasmade more extensive use of civil enforcement toolsto combat mortgage fraud.


4.9

On March 2-4, 2010, the MFWG, workingwith the Office of Legal Education andEOUSA, sponsored a three-day Mortgage FraudTask Force Conference at the National AdvocacyCenter (NAC) for both federal and state enforce-ment attorneys. This course, the first of its kind,brought together Assistant U.S. Attorneys(AUSAs), who handle criminal and civil matters,and state and local prosecutors from state attor-neys’ general offices and district attorneys’ officesaround the country.The course covered the oper-ation of mortgage fraud task forces, federal-statecooperation and coordination in combatingmortgage fraud, civil tools, state tools, case stud-ies and discovery issues. The course also includedregional breakout sessions. Approximately 130attorneys attended the three-day course. MFWGco-chairs Assistant Attorney General Tony Westand U.S. Attorney Benjamin Wagner and TaskForce Director Robb Adkins each participated asinstructors at the course. Other instructors includ-ed experienced Criminal Division attorneys,AUSAs, representatives from state attorneys gen-eral offices, the FBI, HUD-OIG and FinCEN.

A second mortgage fraud seminar was pre-sented at the NAC on May 25-27, 2010.Additionally, on July 14-16, the NAC held aWhite Collar Crime Seminar, which includeda session focused on mortgage fraud issues.

The May 2010 USA Bulletin was devoted tomortgage fraud. The introduction was writtenby MFWG co-chair Benjamin Wagner, andthe issue contained numerous articles address-ing various aspects of both criminal and civilmortgage fraud enforcement.

Additionally, at the U.S. Attorneys’ nationalconference in Tempe, Arizona, on March 24,2010, MFWG co-chairs Assistant AttorneyGeneral Tony West and U.S. Attorney BenjaminWagner participated in a panel presentation to

the U.S. Attorneys on the activities of the TaskForce. The panel also included Task ForceDirector Robb Adkins, Criminal DivisionAssistant Attorney General Lanny Breuer, U.S.Attorney Preet Bharara of the Southern Districtof New York and Charles Steele, DeputyDirector of FinCEN.

The MFWG has also sought mechanismsto help financial institutions more easily iden-tify suspected mortgage fraud. More specifical-ly, members of the MFWG issued two publicadvisories that contained “red flag” indicatorsto identify loan modification fraud as well asreverse mortgage fraud perpetrated againstsenior citizens. Additionally, FinCEN recentlypublished a Notice of Proposed Rulemaking todefine non-bank residential mortgage lendersand originators, formerly responsible for morethan half of residential mortgage markets, asloan or finance companies for the purpose ofrequiring them to establish anti-money launder-ing programs and report suspicious activitiesunder the Bank Secrecy Act.

In April 2010, the Civil Division issued aguidance memorandum to all U.S. Attorneys’Offices concerning civil tools and strategies for usein civil mortgage fraud enforcement cases. Thismemorandum outlined the various civil tools avail-able to combat mortgage fraud, including the FalseClaims Act; the Financial Institutions Reform,Recovery and Enforcement Act of 1989; and theCivil Anti-Fraud Injunction Act.

SIGNIFICANT ENFORCEMENT

ACTIONS

The following is a summary of just a few of thesignificant enforcement actions brought by mem-bers of the MFGW. Many of these actions werepart of Operation Stolen Dreams.


4.10

Builder Bailout Scheme in Chico, California

On May 28, 2010, Anthony G. Symmespleaded guilty to a mail fraud conspiracy andmoney laundering, in connection with a large-scale builder-bailout mortgage fraud scheme. Formany years, Symmes was the largest home builderin Chico, California. In 2006, as the marketcooled, Symmes had a significant amount ofunsold new homes in inventory. Symmes estab-lished relationships with several unlicensed mort-gage brokers to “sell” his homes to straw buyers atinflated prices. Typically, the day after escrowclosed, Symmes rebated $40,000 to $60,000 of thereported purchase price per home to shell compa-nies controlled by the buyers’ agents. The rebateswere not disclosed to the lenders. Altogether, from2006 through 2008, Symmes sold 62 homeswith undisclosed sales rebates. The homes werefinanced in the aggregate amount of $21 million.Dozens of the homes have fallen into foreclosure,causing losses to date of $5 million. Symmes iscooperating in an ongoing mortgage fraud investi-gation, and has paid $4 million toward restitution.This case was a joint enforcement action involvingthe U.S. Attorney’s Office for the Eastern Districtof California, FBI, IRS-CI and the Butte CountyDistrict Attorney’s Office.

Miami Mortgage Fraud Case TargetingHaitian-American Community

On June 16, 2010, Yolette Antoine andConstance Powell were arrested and a six-countindictment was unsealed charging them for theirroles in a mortgage fraud scheme that resulted inthe approval and disbursement of approximately$4.4 million in fraudulent mortgage loans, andlosses of approximately $1.5 million to variouslenders. Antoine advertised herself in theHaitian-American community as someone whocould provide assistance with immigration issuesand as the manager of a government-sponsored

housing program. When individuals contactedher concerning the immigration assistance or thesupposed housing program, Antoine wouldallegedly obtain their personal identifying infor-mation, including the individuals’ names, socialsecurity numbers and copies of their driver’slicenses. The defendants allegedly used this per-sonal information to fraudulently purchase vari-ous properties without the permission of theindividuals. After the closings for the properties,Antoine would prepare and execute fraudulentquit-claim deeds transferring title in the proper-ties to The Antoine Investment Group. Thiscase involved cooperation between the U.S.Attorney’s Office for the Southern District ofFlorida, USPIS, State of Florida Office ofFinancial Regulation and the FBI.

Detroit “Ghost Loans” Mortgage FraudScheme

On June 16, 2010, Ronnie Edward Duke,William Camsell Wells III, Wilinevah JacquelineRichardson, Ryan Andrew Zundel, Robert CharlesBrierley, Nicole Lynn Turcheck and AnthonyEdward Peteres were charged in a criminal com-plaint for mortgage fraud. From 2003 to 2007,Duke and co-conspirators operated a mortgagefraud scheme to defraud 61 financial institutionsthroughout the United States. The conspiratorsposed as mortgage brokers, appraisers, real estateagents and title agents. They recruited more than108 straw buyers to obtain approximately 500mortgages on 180 properties resulting in morethan $100 million in losses. False informationwas provided to mortgage companies to enhancethe straw buyers’ creditworthiness. The crux ofthe scheme was to place multiple “ghost loans,” orunrecorded loans, on one residential propertywithout the other lender’s knowledge. This caseinvolved cooperation between the U.S. Attorney’sOffice for the Eastern District of Michigan andthe FBI.


4.11

$108 Million Countrywide Settlement

Coordination between the FTC and theDepartment of Justice’s U.S. Trustee Programresulted in a global settlement under which twoCountrywide mortgage servicing companiesagreed to pay $108 million to settle charges thatthey: 1) inflated fees charged to cash-strappedhomeowners whose mortgages they were servic-ing; 2) made false or unsupported claims aboutamounts owed by homeowners in chapter 13proceedings; 3) failed to properly credit paymentsfrom chapter 13 homeowners; 4) failed to notifychapter 13 homeowners of extra charges added totheir mortgage bills; and 5) unfairly tried to col-lect previously undisclosed charges after the home-owners’ bankruptcy cases were closed. The FTCconsent order resolved its complaint as well as theU.S. Trustee Program’s challenges to Country-wide’s mortgage servicing practices in bankruptcycourt litigation throughout the country. Under theconsent order, overcharged homeowners whoseloans were serviced by Countrywide before it wasacquired by Bank of America in July 2008 will bereimbursed from a $108 million redress fundadministered by the FTC; Countrywide willestablish internal procedures and an independentthird party will verify compliance with the pre-scribed procedures to help ensure that the claimsfiled in bankruptcy are accurate; and Country-wide will provide adequate notice of its charges sothat homeowners do not emerge from bank-ruptcy only to be required to pay previouslyundisclosed charges or risk foreclosure.

New Jersey Scheme Bankrupted TwoCompanies

Leroy Hayden, the servicing manager of U.S.Mortgage (USM) from 2004 through January2009, pleaded guilty on May 13, 2010, for his rolein the fraudulent sale of more than $136 million inmortgage loans to Fannie Mae and other investors.USM did not actually own the mortgage loans.Michael McGrath Jr., the president of USM, had

previously pleaded guilty for his leadership role inthis offense, and admitted to diverting the pro-ceeds of those sales to fund USM’s operations andfor his personal use. The scheme bankruptedUSM and its wholly-owned subsidiary, CUNational Mortgage LLC. This case involvedcooperation between the U.S. Attorney’s Officefor the District of New Jersey, USPIS, IRS-CI,FBI and HUD-OIG.

Reverse Mortgage Scheme in AtlantaTargeted the Elderly

In 2010, the U.S. Attorney’s Office for theNorthern District of Georgia prosecuted one ofthe first reverse mortgage fraud prosecutions inthe country, a type of scheme that targets the eld-erly. This case is also the first prosecution involv-ing alterations to a Multiple Listing Service(MLS) routinely relied upon by appraisers, real-tors, tax assessors and others in the mortgageindustry to establish accurate property valuations.Defendants Kelsey Hull and Jonathan Kimpsonprofited from the corruption of a Federal HousingAdministration (FHA)-insured program designedto assist seniors 62 years or older with either cashfor equity in their homes (“refi reverses”), or withfunds toward the purchase of a home (“purchasemoney reverses”). The defendants faked downpayments and arranged inflated appraisals to cre-ate bogus equity of up to $100,000 in the proper-ties securing these reverse mortgage loans, whilediverting loan proceeds to themselves. Kimpsonused the stolen identities and passwords of real-tors to increase MLS listing and sale prices insupport of inflated appraisals to create the sub-stantial equity used in the properties. Both defen-dants pleaded guilty on April 8, 2010, in separatecases, to conspiracy to defraud reverse mortgagelenders and the HUD/FHA insurer of the loans.Hull pleaded to an additional count of bank fraudand Kimpson to an additional count of aggravat-ed identity theft.These cases were investigated byHUD-OIG and the FBI, assisted by the USSS,FinCEN, and by local law enforcement including


4.12

the DeKalb County Police Department, DeKalbCounty Probation Office and the Cobb CountySheriff ’s Department.

Federal Trade Commission Civil EnforcementActions

In 2010, the FTC filed four civil enforcementactions in federal district court against 25 defen-dants allegedly engaging in mortgage assistancerelief scams, including foreclosure rescue scams,loan modification scams and mortgage loan auditscams. These cases include the actions againstFedmortgageloans.com, Residential Relief Found-ation, U.S. Homeowners Relief and NationalFinancial Assistance LLC, each of which involvedindividuals or entities seeking to victimize distressedhomeowners with false loan modification scams orfraudulent foreclosure avoidance schemes. In eachof these cases the FTC obtained preliminaryinjunctive relief halting the allegedly deceptive prac-tices and other equitable relief, including assetfreezes and/or appointments of receivers to preservethe possibility of consumer redress. In addition, theFTC obtained final orders against 66 defendants inpreviously filed cases, permanently banning defen-dants from engaging in mortgage assistance reliefservices and imposing approximately $82 million injudgments, of which approximately $35.4 millionwas suspended based upon the defendants’ inabil-ity to pay.These cases include civil contempt judg-ment against Bryan D’Antonio and three compa-nies he controls for violating a 2001 order obtainedby the FTC against D’Antonio and his formercompany, Data Medical Capital Inc., as well as thesummary judgment against Dinamica FinancieraLLC, Valentin Benitez and Jose Mario Esquer inconnection with their respective foreclosure rescuescams.

Michael A. Trap, Glenn S. Rosofsky andRoger T. Jones

During 2010, Michael A. Trap, Glen S.Rosofsky and Roger T. Jones pleaded guilty to

operating Nations Housing ModificationCenter (NHMC) as a fraudulent mortgage loanmodification business, and defrauding more than300 distressed homeowners out of more than$900,000 between April and July 2009. Thethree conspirators fraudulently sold loan modifi-cation services by falsely claiming that NHMChad attorneys and forensic accountants on staff tonegotiate with banks on behalf of NHMC’s cus-tomers, that NHMC had achieved an “extremelyhigh success rate for homeowners that met theNations Home Affordable Modification Programguidelines,” and that NHMC was located onCapitol Hill in Washington, D.C. In fact,NHMC did not have attorneys or forensicaccountants on staff, did not have a high successrate of modifying loans, had no connection withthe U.S. Treasury Department’s Making HomeAffordable program, and its only presence inWashington, D.C., was a rented post office box.These false claims were made in solicitation let-ters that were mailed throughout the country toindividuals behind on their mortgage payments,and encouraged struggling homeowners to call atoll-free number to purchase NHMC’s loanmodification services. The staff of telemarketersat NHMC’s offices in San Marcos, California,used a script provided by the conspirators tomake similar false and misleading statements topotential customers. Trap and Rosofsky furtheradmitted to engaging in money laundering withthe proceeds of this wire fraud scheme, and Jonesadmitted to lying to SIGTARP Special Agents.Jones was sentenced to 33 months in prison,Rosofsky was sentenced to 63 months in prison,and both defendants were ordered to pay resti-tution to the victims of this telemarketingoffense. Trap will be sentencced in 2011. Thecase was prosecuted by the U.S. Attorney’sOffice for the Southern District of Californiawith the help of the San Diego DistrictAttorney’s Office, IRS-CI and SIGTARP.Additionally, the FTC obtained a civil judg-ment against Rosofsky and Trap based on thesame mortgage modification scheme.


4.13

Edward McCusker

Edward G. McCusker and four others wereindicted for executing a $14.6 million mort-gage foreclosure rescue scheme. Three of thedefendants pleaded guilty in 2010. The defen-dants claimed to be able to assist homeownersat risk for foreclosure by purchasing theirhomes, renting the home back to the home-owner, and allowing the homeowner to buy thehouse back after repairing his or her credit.The defendants used false documents to obtainmortgages to purchase the homes from home-owners. Instead of paying the mortgagesobtained on the properties, the defendantsallowed many of the homes to go into foreclo-sure and the homeowners lost everything. Thedefendants include McCusker, an owner ofAxxium Mortgage; his wife; two attorneys whorecruited victims into the scheme; and a mort-gage broker. The case is being prosecuted bythe U.S. Attorney’s Office for the EasternDistrict of Pennsylvania and was investigatedby the FBI, USPIS and the PennsylvaniaDepartment of Banking.

Liberty Real Estate Mortgage FraudScheme

Ten California residents were indicted in June2010 for their roles in a multi-million dollarmortgage fraud scam. According to the indict-ment, Hoda Samuel, a licensed real estate broker,was the head of two Elk Grove, California, com-panies engaged in residential real estate transac-tions: Liberty Real Estate and InvestmentCompany and Liberty Mortgage Company.Conspirators at Liberty Mortgage Companyallegedly prepared loan applications for borrow-ers that contained false employment informationand inflated income. Two defendants, ConnieDevers and Dana Faulkner, who were unlicensedby the Department of Real Estate, helped pre-pare such loan applications. According to the

indictment, when a mortgage lender attemptedto verify this information by calling the purport-ed employer, the lender often spoke to a Libertyemployee or associate who falsely verified theinformation. According to the indictment, Libertytypically offered sellers $15,000 to $40,000 morethan the asking prices for properties. At times thepurchase agreements came with addendums thatcalled for the difference between the two prices tobe diverted at closing to contracting companiesso that the homes could be remodeled and ren-dered compliant with the Americans withDisabilities Act. In fact, such remodeling was sel-dom if ever done, and the payments were fun-neled indirectly back to Liberty clients. Becausethe addendums calling for these payments wereusually withheld both from appraisers and mort-gage lenders, the lenders were typically unawarethat the true purchase price for each property wasbelow the total amount funded by the lender.According to the indictment, from April 2006through February 2007, Liberty was involved inapproximately 30 residential real estate transac-tions in which the mortgage lenders were givenfalse information as to the income of the pur-chasers and/or the value of the homes being pur-chased. At least 28 of the properties have sincegone into foreclosure, resulting in a loss to lendersof more than $5.5 million. Of the 30 propertiesthat are the subject of the indictment, 20 of themwere purchased by buyers who bought more thanone residence, representing that they intended tolive in each. When a single purchaser boughtmore than one residence, Liberty would typicallyarrange for the transactions to be handled by sep-arate title companies, and submit the loan appli-cations to separate mortgage lenders. In addition,the purchases would be scheduled to occur closein time to each other so that one purchase wouldnot appear in a credit report run in connectionwith a subsequent purchase.The case is the resultof an extensive investigation by the FBI and IRS-CI, with assistance from the California Depart-ment of Real Estate. The U.S. Attorney’s Office


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for the Eastern District of California is prosecut-ing the case. To date, two defendants havepleaded guilty for their roles in the fraud scheme.

A LOOK AHEAD

Given the constantly evolving trends andtypes of mortgage fraud seen in various geo-graphic regions of the country, the MFWG plansto hold more training sessions and summits toaddress newly emerging schemes, with anincreased focus on regional-led efforts. TheMFWG will continue to concentrate on out-reach efforts to help financial institutions moreeasily identify mortgage fraud through alerts,advisories and other services. Also, the MFWGwill continue to discuss ways to improve toolsneeded to bring civil and criminal mortgage fraudenforcement actions. Finally, the working groupalso anticipates expanding its enforcement effortsto combat mortgage fraud through coordinatedactions between various Task Force members.

Recovery Act, Procurement AndGrant Fraud Working Group

INTRODUCTION

The American Recovery and ReinvestmentAct of 2009, Pub. L. No. 111-5, 123 Stat. 115(Febuary 17, 2009) (Recovery Act), representsan unprecedented effort by the federal govern-ment to support the American economy. Overthe span of roughly two years, the governmentwill have invested $787 billion in Americanworkers and businesses in the hopes of revivingthe struggling economy. This substantial invest-ment is divided among three types of relief: taxbenefits ($288 billion); contracts, grants andloans ($275 billion); and entitlements ($224 bil-lion). The Recovery Act was designed in recog-nition of both the need to rapidly infuse stimu-lus funds into critical segments of the economy,

as well as the overall goal that the funds be spentas intended and not fall victim to fraud, waste orabuse.

To match the ambitious goals of the RecoveryAct, Congress created a new watchdog organiza-tion tasked solely with the responsibility of ensur-ing that Recovery Act monies are used for theirintended purpose. Headed by Chairman EarlDevaney, and with 12 Inspectors General (IGs) asmembers, the Recovery Accountability andTransparency Board (Recovery Board) representsan innovative effort to prevent fraud from affect-ing Recovery Act funds. Through its efforts, theRecovery Board has closely monitored the roll-outof the Recovery Act and coordinated with the IGsof all the federal agencies distributing the funds.

The Task Force’s Recovery Act, Procurementand Grant Fraud Working Group (workinggroup) is responsible for coordinating a nationalstrategy to draw on all the resources and expertiseof the Justice Department, as well as other partneragencies, regulatory authorities and IGs through-out the Executive Branch, to ensure that taxpay-er funds are safeguarded from fraud and abuseand that the Recovery Act effort is conducted inan open, competitive and non-discriminatorymanner.

The working group is led by its co-chairs:Assistant Attorney General Lanny Breuer for theCriminal Division of the Department of Justice;Assistant Attorney General Christine Varney forthe Antitrust Division of the Department ofJustice; Chairman of the Recovery Accountabilityand Transparency Board, Earl Devaney; and repre-sentatives of the National Association of AttorneysGeneral. The working group consists of a broadarray of members from federal, state and local lawenforcement agencies. Importantly, a critical foun-dation for the working group is the well-developedenforcement framework previously established bythe National Procurement Fraud Task Force,which has now been merged into the working


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group and has been further enhanced byincreased coordination in the community of fed-eral and state IGs under the leadership of theRecovery Board.


There is a generally accepted consensus that,to date, the current wave of stimulus funds hasnot suffered from an appreciable level of fraud.According to the Recovery Board, the federalgovernment has thus far released nearly $600billion. The latest total includes approximately$243 billion in tax credits, $179 billion in enti-tlement benefits and $176 billion in contract,loan and grant spending. Overall, as of January2011, approximately 75 percent of the RecoveryAct’s $787 billion has entered the economy.

Notwithstanding the substantial volume offunds now distributed, the number of federal,state and local prosecutions for Recovery Act-related offenses has been relatively low. The rela-tively low level of fraud detected to date is due insignificant part to the continuing efforts of theRecovery Board and the IGs, bolstered by theworking group, to prevent fraud from happeningin the first place. The Recovery Board has estab-lished two first-rate mechanisms for ensuringtransparency in the allocation and spending ofRecovery Act dollars, as well as for detectingpotential abuses before stimulus funds are wastedor fall victim to fraud: (1) a Recovery OperationsCenter and (2) Recovery.gov, a website that allowsfor the reporting of potential fraud, waste andabuse.

The Recovery Operations Center, launchedin November 2009, is central to the RecoveryBoard’s efforts to keep a close eye on Recoverymoney and ensure that contracts, grants andloans are subjected to comprehensive scrutiny.The operations facility is a state-of-the-artcommand center that combines analysis withsophisticated software tools, government data-

bases and open-source information to track theflow of stimulus money. Its primary objective isto serve as a focused, intelligence-sharing pointfor the oversight community.

The operations center uses sophisticatedscreening and analysis of high-risk recipientsto develop risk-based resource tools for theoversight community. The analytical tools havebeen designed to intercept fraud closer to thefront end of the fraud continuum.

The Recovery Board’s skilled analysts lookfor early warning signs of trouble, searchingmassive amounts of data to identify criminalconvictions, lawsuits, tax liens, bankruptcies,risky financial deals, suspension and debar-ment proceedings, and other problems. Theyemploy business rules commonly used inindustry to help pinpoint high-risk factors.Once a problem has been identified, the ana-lysts then perform an in-depth review of theaward and provide a report to the appropriateIG Office for further inquiry.

Analysts also review information and com-plaints received from citizens who phone thehotline service activated on September 28, 2009.In the past year, more than 2,800 calls, emails,faxes and letters from citizens expressing con-cern about the use of Recovery funds werereceived, and 164 were forwarded to IGs foradditional review. Separately, IGs with RecoveryAct funds have established hotlines of their ownso that potential fraud can be reported directlyto their agencies.

The Recovery Board is helping to share theoperations center model with other govern-ment agencies. For example, the RecoveryBoard’s staff conducted a successful 30-dayfraud pilot project with the Centers forMedicare and Medicaid Services. The demon-stration developed solid investigative leadsrelated to schemes to defraud Medicare andMedicaid.


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Many high-profile visitors have toured theoperations center in the past year, including VicePresident Biden. During his April 6, 2010, visit,the Vice President announced that he was deliv-ering “a very clear and unambiguous message ...straight from the Oval Office: not reporting isnot acceptable.”

The establishment of the working group lastyear added the full weight of the law enforce-ment community behind the Recovery Board’sefforts. Because it was established at a stagewhen stimulus funds had yet to be distributed inany significant quantity, the working groupfocused its early efforts on laying a solid foun-dation for a coordinated enforcement responseas allegations of Recovery Act fraud surfacedand, equally important, on expanding upon theRecovery Board’s vigilant fraud prevention anddetection effort aimed at stopping frauds beforethey occur. The working group has made signif-icant strides toward these ends.


Perhaps the most visible and influential workdone by the working group to date is the group’sfraud prevention and detection training effort.These efforts, which draw significantly from theefforts undertaken by the Recovery Board and theIGs of federal agencies with Recovery Act funds,have targeted two key constituencies: (i) profes-sionals at the federal and state levels responsiblefor detecting, reporting and/or preventingRecovery Act fraud, such as the procurement andgrant officials who are awarding and overseeingRecovery Act funds; and (ii) individuals responsi-ble for investigating and prosecuting Recovery Actfraud, including federal and state agents and civiland criminal prosecutors. At the close of 2010,more than 100,000 professionals responsible forawarding and overseeing Recovery Act fundswere trained as part of this effort, and these num-bers are only continuing to grow. This targeted

fraud prevention and detection effort is one ofthe largest such efforts in history.

These efforts were punctuated by a flagshiptraining event for agents, auditors and procure-ment and grant officers, entitled “Focus onRecovery,” which was held in mid-November,2010, in Philadelphia. The conference boastedspeakers from the highest levels of the JusticeDepartment and IG community, as well as elect-ed officials, including the Vice President of theUnited States. The conference was a tremendoussuccess, attracting well over 500 attendees.

To ensure that a lasting emphasis is placed onprevention and detection training, the workinggroup has also spent considerable time this pastyear coordinating with existing procurement andgrant fraud training programs to include aRecovery Act focus. For example, the workinggroup has coordinated with the Federal LawEnforcement Training Center to include RecoveryAct training segments in course curricula for itsvast array of training programs for federal investi-gators. These courses are offered at regular inter-vals throughout each calendar year.


ACTIONS

The working group has also played an impor-tant role in supporting and coordinating themany federal, state and local law enforcemententities involved in the Recovery Act effort. Inaddition to hosting regular, quarterly meetingsamong its membership to discuss emerging fraudtrends and updates, the working group has beenproactive in monitoring Recovery Act fraudtrends, identifying opportunities for multi-agency enforcement initiatives, and establishing acoordinated enforcement framework for combat-ing Recovery Act fraud.


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The working group has also focused onpotential enforcement. Working closely withthe Recovery Board, the IG community, andthe Department of Justice, the working groupis tracking information on criminal prosecu-tions and civil enforcement matters openedand pending in prosecutors’ offices that involveRecovery Act funds. This effort allows theworking group to: (i) track existing matters andspot emerging fraud trends; (ii) stay attuned toprogress in bringing these fraud cases to prose-cution; (iii) identify cases that may require addi-tional resources; and (iv) develop new ideasabout strategies for addressing particular fraudsand potential legislative fixes.

In addition to monitoring fraud trends andexisting enforcement efforts, the workinggroup has been proactive in identifying, foster-ing and coordinating targeted, multi-agencyinitiatives designed to address particularizedRecovery Act fraud schemes and issues. Thefraud schemes emerging in the Recovery Actarea are typical of the procurement and grantfraud and tax and benefits frauds that white-collar prosecutors have pursued for many years.In response to the importance placed on pro-tecting Recovery Act funds, the working grouphas put an emphasis on building strong coalitionsamong agencies to commit the time andresources necessary to vigorously pursue thesecrimes and to develop cases when any RecoveryAct dollars are at issue. Ensuring strong commu-nication and coordination among civil attorneysand criminal prosecutors, the IG community, andstate and local authorities, is essential in combat-ing Recovery Act fraud.

Among the most noteworthy of the workinggroup’s coordination efforts this year was the for-mal integration of the well-developed enforce-ment framework previously established by theformer National Procurement Fraud Task Force(NPFTF) into the working group structure. TheNPFTF shared the same goal as the working

group — to coordinate law enforcement and reg-ulatory partners in combating fraud against gov-ernment funds.To maximize the working group’sefforts and to better leverage the resources of theIG community, the NPFTF was formally mergedinto the working group in late 2010.

This merger has significantly broadened thefocus of, and more importantly, the resourcesavailable to, the working group. The merger hasbroadened the working group’s focus to includeenforcement issues of procurement and grantfraud, generally, with the recognition thatstrengthening procurement and grant fraudenforcement will necessarily benefit the workinggroup’s goal of fighting specific Recovery Actfrauds.The NPFTF’s six committees now oper-ate as part of the working group, with theirmembership attending regular working groupmeetings and reporting on committee develop-ments, initiatives and plans.

A LOOK AHEAD

In 2011, the working group intends to con-tinue its aggressive detection and monitoringefforts, primarily through the work of theRecovery Board. In addition, as new frauds onRecovery Act funds are detected by workinggroup members or their law enforcement part-ners, including the IG community, the workinggroup will stand ready to facilitate the investi-gation and prosecution of Recovery Act fraud-sters by its law enforcement members andpartners, including the Criminal and AntitrustDivisions of the Justice Department and thenation’s U.S. Attorneys’ Offices.

Adding to the already substantial capabilitiesof the working group will be the six committeesthat were formerly part of the NPFTF: theGrant Fraud Committee (chaired by CynthiaSchnedar, Acting Inspector General of theDepartment of Justice); the Information SharingCommittee (chaired by Peggy E. Gustafson,


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Inspector General of the Small Business Admin-istration); the Legislation Committee (chaired byBrian D. Miller, the Inspector General of theGeneral Services Administration); the Public/Private Sector Outreach Committee (chaired byEric M.Thorson, Inspector General of the TreasuryDepartment and Brian D. Miller, InspectorGeneral of the General Services Administration);the Suspension and Debarment Committee(chaired by Allison C. Lerner, Inspector General ofthe National Science Foundation, and Steve A.Linick, Inspector General of the Federal HousingFinance Agency); and the Training Committee(chaired by David C. Williams, Inspector Generalof the U.S. Postal Service).

The expertise and experience that these com-mittees and their members bring to bear will be oftremendous benefit for the working group as itmoves forward in the year ahead.

Rescue Fraud Working Group

INTRODUCTION

The Task Force’s Rescue Fraud Working Group(RFWG) is principally focused on training andoutreach relative to the Troubled Asset ReliefProgram (TARP); detection of fraud, waste andabuse; and increasing the robust and aggressiveprosecution of crimes related to the TARP (“res-cue fraud”). To this end, the RFWG originallydeveloped several goals: (1) improve coordinationand information sharing among agencies address-ing rescue fraud; (2) enhance our civil and crimi-nal enforcement efforts; and (3) increase trainingand outreach opportunities for member agencies.

The RFWG is co-chaired by Christy Romero,Acting Special Inspector General for the TroubledAsset Relief Program (SIGTARP); AssistantAttorney General Lanny Breuer for the Criminal

Division of the Department of Justice (DOJ); andChristian Weideman, Chief Counsel for theOffice of Financial Stability (OFS) of the Depart-ment of the Treasury. In addition to members fromthe co-chair agencies, the RFWG is made up ofrepresentatives from the FBI, the Internal Rev-enue Service-Criminal Investigation (IRS-CI),the Financial Crimes Enforcement Network(FinCEN), DOJ’s Civil Division, the U.S. PostalInspection Service (USPIS), U.S. Attorneys’Offices, the Federal Deposit Insurance Corpora-tion — Office of the Inspector General (FDIC-OIG), the Securities and Exchange Commission(SEC), the Federal Trade Commission (FTC),the Federal Reserve Board, the Office of ThriftSupervision, the Office of the Comptroller of theCurrency, the FDIC, and others.

During 2010, the RFWG made great pro-gress towards achieving the goals developed dur-ing its inaugural year, including partnering withworking group members as well as state and localagencies throughout the country to coordinateactions on specific investigations, conducting sig-nificant outreach activities, and successfully charg-ing many criminal and civil actions on both thefederal and state levels.

OUTREACH, TRAINING AND

INITIATIVES

The RFWG held two, full member meetings inWashington, D.C., during 2010, as well as multiplestrategic meetings among the co-chairs and theirrespective representatives. During these meetings,the focus has been largely to educate working groupmembers about the TARP programs administeredby OFS, to emphasize fraud detection and to iden-tify existing investigations with a nexus to TARP.Consistent with their missions, SIGTARP andOFS participated in outreach and training activitieswith respect to the TARP as follows.


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SIGTARP

Representatives of SIGTARP made more than50 presentations during 2010 to both governmentand private industry representatives in numerousvenues. These outreach efforts, which continueinto 2011, have concentrated on outliningSIGTARP’s authority and mission, providing anoverview of the programs administered throughTARP, and identifying cases currently in agencies’inventory that may have a TARP connection.Outreach conducted during 2010 included: multi-ple presentations at DOJ’s National AdvocacyCenter to representatives of DOJ and the 94 U.S.Attorneys’ Offices throughout the country; dozensof presentations to groups of federal, state and locallaw enforcement and prosecutors throughout thecountry; and presentations to professional organi-zations such as the American Bar Associationand state associations for certified public account-ants, among many others. Further, SIGTARPInvestigations Division members have heldcountless meetings throughout the country withAssistant U.S. Attorneys and our law enforce-ment partners to discuss the intricacies of theprograms overseen by SIGTARP.

Additionally, SIGTARP and its law enforce-ment partners have had significant engagementwith the media to ensure that SIGTARP’s lawenforcement efforts are well understood both bythe public and by those who would profit crimi-nally from TARP.

OFS

OFS has continued to provide training andoutreach to educate the public and practitionersrelative to programs being developed and initi-ated through TARP.

Making Home Affordable (MHA)Nationwide Outreach

Since June 2009, OFS personnel, in part-nership with the Department of Housing and

Urban Development (HUD), HOPE Nowand NeighborWorks America have held 51nationwide MHA events which served morethan 50,000 homeowners and their families.Significant media coverage has helped reach farbeyond the number of people who attended theseevents.

Also, Treasury has organized partnerroundtables in every city visited, meeting withnearly 1,000 local and state officials, housingcounselors and congressional staff to provide aprogram update and receive feedback about theprogram. Finally, event-related training ses-sions primarily for housing counselors havereached about 10,000 people.

Ad Council MHA PSA Campaign

Through the end of December 2010, thebilingual Ad Council MHA campaign –—launched last July — reported the airing nation-wide of more than 45,000 television ads and95,000 radio ads. The television ads alone trans-late into 48.8 million times adults 18 years of ageand older were exposed to the campaign’s publicservice advertisements. The campaign has alsoincluded more than 1,100 MHA billboards.


ACTIONS

SIGTARP has developed into a highly sophis-ticated white collar crime investigative agency. Asof February 28, 2011, SIGTARP had 144 ongoingcriminal and civil investigations (including investi-gations relating to executives at 64 financial insti-tutions that applied for and/or received fundingunder TARP’s Capital Purchase Program), mostin partnership with other law enforcement agen-cies. In partnership with other law enforcementagencies, SIGTARP has participated in investiga-tions that have delivered substantial results:


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asset recoveries of $151.8 million, with anadditional estimated savings of $555.2 mil-lion through fraud prevention;

47 individuals and 16 entities subject to civilor criminal actions;

criminal convictions of 16 defendants forfraud; and

civil actions naming 12 corporations or otherentities as defendants.

SIGTARP’s investigations concern suspectedTARP fraud, accounting fraud, securities fraud,insider trading, bank fraud, mortgage fraud, mort-gage servicer misconduct, fraudulent advance-feeschemes, public corruption, false statements,obstruction of justice, theft of trade secrets, moneylaundering, perjury to Congress and tax-relatedoffenses. Over the past year, SIGTARP’s inves-tigative activity, in partnership with other inves-tigative agencies and the DOJ, has led to severalsignificant developments, as described below.

Colonial BancGroup/Taylor, Bean &Whitaker

On June 15, 2010, the Justice Department’sCriminal Division, together with the U.S.Attorney’s Office for the Eastern District ofVirginia, filed an indictment against LeeBentley Farkas, former chairman of Taylor,Bean & Whitaker (TBW), charging him withconspiracy to commit bank, wire and securitiesfraud; and multiple counts of bank fraud, wirefraud and securities fraud. Among other things,Farkas was charged for his role in attempting tosteal $553 million from TARP through thefraudulent application of Colonial BancGroupfor TARP funds under the Capital PurchaseProgram (CPP). Farkas perpetuated a massivefraud scheme that resulted in an undisclosed holein Colonial’s books and records, and later causeda false filing by Colonial with the SEC that false-ly represented that Farkas had raised $300 million

in private financing for Colonial, a requirement forColonial to obtain TARP funding. The fraudscheme involved more than $2.9 billion andcontributed to the failures of Colonial andTBW in 2009 and victimized numerous otherpublic and private institutions. Subsequently, inApril 2011, Farkas was convicted by a jury on allcharges for perpetrating the massive fraudscheme. Also in 2011, prior to Farkas’ trial, sixco-conspirators pleaded guilty for their roles inthe fraud scheme. SIGTARP, the FBI, FDIC-OIG, HUD-Office of Inspector General (HUD-OIG), the Federal Housing Finance Agency-Office of the Inspector General and IRS-CI in-vestigated this case.

The Shmuckler Group LLC

On November 18, 2010, Howard Shmucklerwas arrested pursuant to a 30-count indictmentobtained by the Prince George’s County State’sAttorney’s Office in Maryland. Shmuckler ownedand operated Shmuckler Group, a company locatedin Vienna, Virginia, that purportedly offered mort-gage modification services. He was charged withconspiracy, theft and operating a business without alicense, all relating to an alleged mortgage modifi-cation scam that took advantage of the publicitysurrounding the TARP-supported Home Afford-able Modification Program (HAMP). Accordingto a related cease and desist order issued by theMaryland Commissioner of Financial Regulation,Shmuckler, along with two other individuals andtheir affiliated companies, are alleged to have col-lected more than $1.2 million in upfront fees from372 Maryland homeowners by falsely promisingto persuade banks to modify the terms of thehomeowners’ mortgages. According to the sameorder, Shmuckler contracted with Nova Key LLCto market and sell Shmuckler Group loan modifi-cation services to homeowners, including advertis-ing that targeted Spanish-speaking homeownerswho had obtained subprime mortgages that theycould not afford and who had fallen behind ontheir mortgage payments. According to the order,many of these homeowners subsequently lost their


4.21

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homes to foreclosure. This case resulted from ajoint investigation conducted by SIGTARP, theOffice of the State’s Attorney for Prince George’sCounty, and the Maryland Department of LaborLicensing and Regulation’s Financial RegulationDivision.

Residential Relief Foundation

On November 17, 2010, pursuant to courtorder, the FTC halted the operations of theResidential Relief Foundation and affiliated com-panies and individuals. This action, supported bySIGTARP’s investigative efforts, was based on acivil complaint filed by the FTC alleging that thedefendants violated federal law by falsely claim-ing that they would obtain loan modificationsand significantly lower mortgage payments forconsumers in return for upfront fees. Accordingto the FTC complaint, the Residential ReliefFoundation used a logo similar to the GreatSeal of the United States and told consumers thatit is nearly impossible for homeowners to obtainmortgage modifications on their own. Claimingquick results and a high success rate, the defen-dants charged a $1,495 up-front fee, advisedhomeowners to stop making mortgage paymentsand falsely claimed that reports the defendantscreated would enable homeowners to obtain thepromised results, according to the complaint. Inaddition, the FTC charged that in marketingdebt relief services for credit card debt, the defen-dants falsely told people they could become debtfree in 12 to 36 months, remove late fees andpenalties, and reduce debts up to 50%. At theFTC’s request, a federal court ordered a halt tothe operation, appointed a receiver and froze thedefendants’ assets, pending trial. The FTCaction seeks to stop the defendants’ deceptiveclaims permanently and make them forfeit theirill-gotten gains. SIGTARP provided investiga-tive support in furtherance of the FTC’s case.SIGTARP’s investigation is ongoing.

Park Avenue Bank

On October 8, 2010, Charles Antonucci,the former president and chief executive officer(CEO) of Park Avenue Bank, pleaded guilty inthe U.S. District Court for the SouthernDistrict of New York to offenses includingsecurities fraud, making false statements tobank regulators, bank bribery and embezzle-ment of bank funds. In particular, Antonucciattempted to steal $11 million of TARP fundsby, among other things, making fraudulentclaims about the bank’s capital position. With hisguilty plea, Antonucci became the first defen-dant convicted of attempting to steal from thetaxpayers’ investment in TARP. Antonuccifalsely represented that he had personallyinvested $6.5 million in Park Avenue Bank toimprove its capital position. As Antonucciadmitted, however, the funds were actually bor-rowed from Park Avenue Bank itself and rein-vested as part of an undisclosed “round-trip”transaction.This fraudulent transaction was tout-ed by Park Avenue Bank in its application forTARP funds as evidence of its supposedlyimproving capital position, a key factor regula-tors considered when awarding TARP funds.In addition, Antonucci admitted to makingfalse representations to bank regulators aboutthe source of the $6.5 million. The U.S.Attorney’s Office for the Southern District ofNew York prosecuted the case and the ongoingSIGTARP investigation is being conducted inpartnership with the FBI, U.S. Immigration andCustoms Enforcement (ICE), the New YorkState Banking Department Criminal Investiga-tions Bureau and FDIC-OIG.

Omni National Bank

Omni National Bank was a national bankheadquartered in Atlanta with branch officesin seven states. Omni failed and was taken overby the FDIC on March 27, 2009. Before its


4.22

failure, Omni had applied for, but did notreceive, TARP funds under CPP. SIGTARP hasparticipated in several investigations concerningOmni that have led to criminal charges as part ofa mortgage fraud task force that includes SIG-TARP, the U.S. Attorney’s Office for theNorthern District of Georgia, FDIC-OIG,HUD-OIG, USPIS and the FBI. On January 14,2010, Jeffrey Levine, Omni’s former executive vicepresident, pleaded guilty in federal district courtto charges of causing material overvaluations ofbank assets in the books, reports and statements ofOmni. On March 23, 2010, Brent Merriell plead-ed guilty in federal district court to charges ofmaking false statements to the FDIC and sixcounts of aggravated identity theft in connectionwith a scheme to prompt Omni to forgive $2.2million in loans. Delroy Davy pleaded guilty onMay 11, 2010, in federal district court to chargesof bank fraud and conspiracy. On April 1, 2010,Mark Anthony McBride was sentenced to 16 yearsin prison on charges of conspiracy to commit bank,mail, wire and bankruptcy fraud. On January 5,2011, Karim W. Lawrence, an officer andemployee of Omni, pleaded guilty to charges ofcorruptly receiving commissions or gifts inexchange for procuring loans. SIGTARP’s involve-ment in the investigations is ongoing.

United Law Group

In March 2010, SIGTARP, along with USPIS,FBI, ICE and the Orange County DistrictAttorney’s Office, executed a publicly filed searchwarrant obtained by the U.S. Attorney’s Office forthe Central District of California at the offices ofUnited Law Group (ULG). This investigationfocuses on allegations that ULG, taking advantageof the publicity surrounding HAMP, engaged in amortgage modification advance-fee scheme. Thesearch warrant affidavit alleges that ULG chargedstruggling homeowners fees ranging from $1,500to $12,000 without performing services, whileadvising victims to stop paying their mortgagesand terminate contact with their lenders. Many

ULG customers subsequently lost their homes toforeclosure. On June 30, 2010, ULG filed forbankruptcy protection. On December 20, 2010, asa direct result of SIGTARP’s investigative efforts,U.S. Bankruptcy Judge Robert Kwan issued a pre-liminary injunction assigning control of a bankaccount held by ULG containing client funds toULG’s bankruptcy trustee.The bankruptcy trusteeassigned to wind down the operations of ULG inIrvine, California, estimates that approximately $1million from the seized account will be returned tothe estate to serve as restitution to victims.SIGTARP’s investigation with its law enforce-ment partners is ongoing.

Bank of America

On February 4, 2010, the New York AttorneyGeneral charged Bank of America Corporation,its former CEO Kenneth D. Lewis, and its formerchief financial officer Joseph L. Price, with civilsecurities fraud. According to the allegations, inorder to complete a merger between Bank ofAmerica and Merrill Lynch & Co. Inc., the defen-dants failed to disclose to shareholders spiralinglosses at Merrill Lynch. Additionally, after themerger was approved, it is alleged that Bank ofAmerica made misrepresentations to the federalgovernment in order to obtain tens of billions ofdollars in TARP funds.The investigation was con-ducted jointly by the New York AttorneyGeneral’s Office and SIGTARP, and the caseremains pending in New York state court.

SIGTARP also assisted the SEC with itsBank of America investigation. On February22, 2010, U.S. District Judge for the SouthernDistrict of New York Jed S. Rakoff, approved a$150 million civil settlement between the SECand Bank of America to settle all outstandingSEC actions against the firm. The court foundthat Bank of America failed to disclose ade-quately to its shareholders, prior to theirapproval of a merger with Merrill Lynch, theextent of additional material losses that Merrill


4.23

Lynch had suffered. Additionally, the courtfound that the proxy statement sent to share-holders in November 2008 failed to discloseadequately Bank of America’s agreement toallow the payment of bonuses to MerrillLynch employees prior to the merger. Inaddition to the $150 million payment, Bankof America also agreed to the following set-tlement requirements:

engaging an independent auditor to assess andreport on the effectiveness of the company’sdisclosure controls and procedures;

furnishing management certifications signedby the chief executive officer and chief finan-cial officer with respect to proxy statements;

retaining disclosure counsel to the audit com-mittee of the company’s board of directors;

adopting independence requirements beyondthose already applicable for all members of thecompensation committee of the company’sboard of directors;

retaining an independent compensation con-sultant to the compensation committee;

implementing and disclosing written incen-tive compensation principles on the compa-ny’s website and providing the company’sshareholders with an advisory vote concerningany proposed changes to such principles; and

providing the company’s shareholders with anannual “say on pay” advisory vote regardingthe compensation of executives.

Mount Vernon Money Center

On March 11, 2010, Robert Egan, president,and Bernard McGarry, chief operating officer, ofthe Mount Vernon Money Center (MVMC),were indicted in the Southern District of New

York on charges related to their theft of morethan $50 million entrusted to MVMC. OnSeptember 15, 2010, Egan pleaded guilty toconspiracy to commit bank fraud and wirefraud. On October 13, 2010, McGarry pleadedguilty to the same offenses. Egan andMcGarry defrauded MVMC clients, includingbanks that had received TARP funds, out ofmore than $50 million that had been entrustedto MVMC. MVMC engaged in various cashmanagement businesses, including replenish-ing cash in more than 5,300 automated tellermachines owned by financial institutions.From 2005 through February 2010, Egan andMcGarry solicited and collected hundreds ofmillions of dollars from MVMC’s clients onthe false representations that they would notco-mingle clients’ funds or use the funds forpurposes other than those specified in the var-ious contracts with their clients. Relying uponthe continual influx of funds, Egan andMcGarry misappropriated the clients’ fundsfor their and MVMC’s own use, to cover oper-ating expenses of the MVMC operating enti-ties, to repay prior obligations to clients, or fortheir own personal enrichment. This case wasjointly investigated by SIGTARP and the FBIand was prosecuted by the U.S. Attorney’sOffice for the Southern District of New York.

American Home Recovery

On August 11, 2010, the U.S. District Courtfor the Southern District of New York unsealedan indictment charging Jaime Cassuto, DavidCassuto and Isaak Khafizov, the principals ofAmerican Home Recovery (AHR), a mortgagemodification company located in New YorkCity, with one count of conspiracy to commitmail and wire fraud, one count of wire fraud,and two counts of mail fraud, all relating to amortgage modification scam.

The defendants had been arrested in June2010, on charges contained in a criminal com-


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plaint by special agents from SIGTARP and theFBI, as part of the Task Force’s nationwide Oper-ation Stolen Dreams mortgage fraud sweep.According to the indictment, the defendants per-petrated a scheme to defraud homeowners usingmailings and telemarketing efforts. It is allegedthat the defendants, through AHR, falsely prom-ised to assist desperate homeowners by negoti-ating with banks to modify the terms of theirmortgages in exchange for upfront fees of sever-al thousand dollars. In fact, the indictmentalleges, AHR did little or no work to modify themortgages. Through their scheme, the defendantsobtained more than $500,000 from homeownersthroughout the country, according to the indict-ment. The indictment further alleges that one ofthe defendants, Khafizov, directed AHR sales-people to falsely inform prospective clients thatAHR had an 80%-90% success rate in securingmodification of clients’ mortgages and thatAHR would issue a full refund of the upfrontfee to any client whose mortgage was not suc-cessfully modified by AHR. In addition, AHRsalespeople allegedly misrepresented to home-owners that AHR would ensure their participa-tion in the TARP-funded MHA program.AHRsalespeople falsely advised homeowners that theywere more likely to obtain a mortgage modifica-tion from their bank if they fell further behind ontheir mortgage payments and/or stopped makingpayments to their bank entirely, and sent theirmoney to AHR instead, the indictment alleges.The case is pending. This ongoing SIGTARPinvestigation is being conducted in partnershipwith the FBI and is being prosecuted by the U.S.Attorney’s Office for the Southern District ofNew York.

Goldwater Bank

On September 15, 2010, Goldwater N.A.,located in Scottsdale, Arizona, entered into asettlement agreement with the U.S. Attorney’sOffice for the Southern District of New Yorkrequiring it to forfeit $733,805 to resolve civil

forfeiture claims related to Goldwater’s allegedlaundering of illegal online gambling proceeds.Goldwater had received approximately $2.6 mil-lion from TARP through CPP. Between Januaryand May 2009 more than $13.3 million in fundstraceable to offshore online gambling compa-nies were deposited in a bank account atGoldwater held by Allied Wallet Inc. The for-feiture amount equaled the net income thatGoldwater received to process these transac-tions. Additionally, in order to safeguard thegovernment’s continued TARP investment inthe bank, Goldwater agreed to develop andimplement internal anti-money laundering pro-cedures, to comply with the Bank Secrecy Act,and to create internal training programs and anindependent audit function to ensure that itscompliance is effective. SIGTARP jointly inves-tigated Goldwater with the FBI and the U.S.Attorney’s Office for the Southern District ofNew York.

A LOOK AHEAD

During 2011, the RFWG will continue tofocus on training and outreach relative to TARPas well as on the detection of fraud, waste andabuse, and its members will concentrate on therobust and aggressive investigation and prosecu-tion of crimes related to TARP.

Securities and Commodities FraudWorking Group

INTRODUCTION

When the President created the Task Force inNovember 2009, a central enforcement priority wassecurities, commodities and investment fraud. Toaddress this priority area, the Securities andCommodities Fraud Working Group (SCFWG)was created to collaborate and exchange informa-tion regarding a number of subjects relevant to the


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work of its members, including developing crim-inal trends, new laws and regulations, and lawenforcement issues and techniques.

The SCFWG is chaired by David Meister,Director of Enforcement for the CommodityFutures Trading Commission (CFTC); AssistantAttorney General Lanny Breuer for the CriminalDivision of the Department of Justice; RobertKhuzami, Director of Enforcement for theSecurities and Exchange Commission (SEC);and Preet Bharara U.S. Attorney for theSouthern District of New York; and includesmore than a dozen fraud enforcement agenciesand regulators.


Between December 2009 and December2010, the SCFWG formally met on four occa-sions. During these meetings, SCFWG mem-bers conducted workshops on, and discussed, anumber of important issues related to securitiesand commodities fraud enforcement, includingthe Dodd-Frank Wall Street Reform andConsumer Protection Act, the investigation andprosecution of investment frauds, parallel crimi-nal and civil proceedings, and the use of SECadministrative proceedings.

Apart from the formal meetings of the work-ing group, SCFWG representatives communi-cate regularly to coordinate on specific investiga-tions and prosecutions, as well as relevant poli-cies. SCFWG members also participate inregional cooperative efforts, such as the VirginiaFinancial and Securities Task Force; the Con-necticut Securities, Commodities, and InvestorFraud Task Force; and the South FloridaSecurities and Investment Fraud Initiative.

Training and Coordination

Each of the formal SCFWG meetingsinvolved training and education opportunities,

and all of the SCFWG members contributed inthis area. In addition, SCFWG members havemade efforts to educate the law enforcementcommunity and public at large on securities andcommodities fraud-related issues. Representativeexamples come from the CFTC, the FederalTrade Commission (FTC) and the U.S. PostalInspection Service (USPIS).


The CFTC has worked to promote coordi-nation of enforcement efforts with SCFWGmembers and other law enforcement agenciesat the national, regional, state and local levelsto address commodities violations, securitiesviolations, market manipulation, corporatefraud and other related financial wrongdoing.

The CFTC’s Division of Enforcement meetsregularly with the Department of Justice con-cerning parallel proceedings.The CFTC has alsodetailed attorneys from its Division of Enforce-ment to assist the Department of Justice in thecriminal investigation and prosecution of com-modities fraud. In addition to participating innational financial fraud enforcement workinggroups, the CFTC has partnered with variousregional groups comprised of SCFWG membersand state and local civil and criminal authorities.For example, the CFTC is a member of theSouth Florida Securities and Investment FraudInitiative, the Virginia Financial and SecuritiesTask Force, the Indiana Financial CrimesWorking Group, the Missouri Securities andCommodities Fraud Working Group, theArizona Securities Investment Working Group,and the Connecticut Securities and Commodi-ties Working Group.

The CFTC has provided training to manySCFWG members and participated in speakerpanels and seminars to promote cooperativeenforcement efforts on conducting parallel crim-inal and civil prosecutions of commodities market


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manipulation and fraud. For example, the CFTCprovided training at the Justice Department’sNational Advocacy Center, the Financial CrimesDivision of the FBI and U.S. Attorneys’ Officesaround the nation. The CFTC has worked withthe Department of Justice and the SEC to con-duct cross-agency training, especially traininginvolving the CFTC’s new enforcement powersunder the Dodd-Frank Wall Street Reform andConsumer Protection Act.


The FTC engaged in several efforts to edu-cate the law enforcement community as well asthe public. For example:

ftc.gov/moneymatters: To help people affectedby the economic downturn, the FTC createdftc.gov/moneymatters, a website with informa-tion on how to avoid scams, managing moneyand dealing with debt. The FTC producedseveral videos and publications to providetimely and relevant information for consumersfacing financial hardship. One video, “Don’tPay for a Promise,” offers information for jobhunters about recognizing and avoiding jobplacement scams. Another, “Fraud: AnInside Look,” describes bogus investmentoffers and features a former convicted scam-mer, and “10 Things You Can Do to AvoidFraud,” is a practical tip sheet on avoidingcommon frauds and scams.

U.S. Postal Inspection Service

During 2010, USPIS Inspectors educated con-sumers about various fraud schemes and provideduseful tips on how they can protect themselvesfrom being victimized. In addition to conductingregular consumer awareness activities in localcommunities, USPIS Inspectors also participate inthe annual National Consumer Protection WeekCampaign, sponsored by the FTC.

In response to an increase in fraud schemes dur-ing the economic downturn, the USPIS developeda website, deliveringtrust.com, to provide consumerawareness and fraud prevention tips. As part of theDelivering Trust Campaign, USPIS developed afraud prevention brochure with additional fraudprevention and awareness tips and mailed it to everyhousehold in the United States.


ACTIONS

During 2010, SCFWG members investigated,filed charges, obtained convictions, and securedlengthy jail sentences in numerous significantcases involving securities, commodities and otherinvestment frauds. What follows are examples ofthese efforts.


The CFTC has devoted considerable efforts topartnering with SCFWG members to address anddeter conduct that violates the CommodityExchange Act (CEA), 7 U.S.C. § 1 et seq., andthe CFTC Regulations, 17 C.F.R. § 1.1 et seq.,including unlawful market manipulation, com-modity pool/hedge fund fraud and illegal off-exchange commodity schemes.

During Fiscal Year (FY) 2010 (ending Sept-ember 30, 2010), more than 95 percent of theCFTC’s major injunctive fraud cases involvedrelated criminal investigations and, as of February2011, more than 65 percent of those investigationsresulted in criminal charges. The CFTC alsoengaged in cooperative enforcement efforts withcivil regulatory SCFWG members during FY2010, and approximately 65 percent of theCFTC’s major fraud actions involved parallelinvestigations with federal civil authorities.

The CFTC filed 57 enforcement actions inFY 2010, representing a 14 percent increase over


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the number of cases filed in FY 2009. TheCFTC’s filings involved allegations of marketmanipulation, including false reporting and falsestatements, fraud, registration abuses and otherviolations of the CEA. During FY 2010, theCFTC obtained judgments ordering the pay-ment of more than $200 million in civil mon-etary penalties, restitution and disgorgement.During FY 2010, the CFTC opened 419 inves-tigations, which represented 66 percent morethan the 251 investigations opened in FY 2009.

The following are examples of significantCFTC enforcement actions in 2010:

Market Manipulation, False Reportingand Trade Practice Violations

In re Moore Capital Mgmt. L.P., et al.

On April 29, 2010, the CFTC simultane-ously filed and settled an administrativeaction against Moore Capital ManagementLP (MCM) and two of its affiliates. Theorder found that, since at least November2007 through May 2008, a former MCMportfolio manager attempted to manipulatethe settlement prices of the New YorkMercantile Exchange (NYMEX) platinumand palladium futures contracts by engagingin a practice known as “banging the close.”The order also found that MCM failed todiligently supervise the handling of MCM’scommodity interest business. The CFTCissued a cease and desist order and imposed a$25 million civil monetary penalty, three-yearregistration prohibition and an order to com-ply with certain trading undertakings.

In re Morgan Stanley Capital Group Inc.;In re UBS Securities LLC

On April 29, 2010, the CFTC simultaneouslyfiled and settled an administrative enforcement

action against Morgan Stanley Capital GroupInc. in connection with Morgan Stanley con-cealing from the NYMEX the existence of alarge Trade at Settlement block crude oil trade.The CFTC also simultaneously filed and set-tled an administrative enforcement actionagainst UBS Securities on the same day foraiding and abetting that concealment. Theorder found that the actions of Morgan Stanleyand UBS Securities concealed the occurrenceof the trade from the NYMEX. The CFTCorder required Morgan Stanley to pay a $14million civil monetary penalty, cease and desistfrom further violations of the CEA, and com-ply with certain trading undertakings. TheCFTC ordered UBS Securities to pay a$200,000 civil monetary penalty and to ceaseand desist from violations of the CEA. TheCFTC received cooperation from the NewYork County District Attorney’s Office in con-nection with this matter.

In re ConAgra Trade Group Inc.

On August 16, 2010, the CFTC simultane-ously filed and settled an administrativeenforcement action against ConAgra TradeGroup Inc. (CTG) finding that CTG caused anon-bona fide price to be reported in theNYMEX crude oil futures contract on January2, 2008. Specifically, the order finds that onJanuary 2, 2008, CTG was the first to purchaseNYMEX crude oil futures contracts at thethen-historic price of $100; as a result, CTGcaused a non-bona fide price to be reported.The CFTC assessed sanctions, including: a$12 million civil monetary penalty; a cease anddesist order; and an order to comply with cer-tain undertakings regarding its compliance andethics program, including appointing an inde-pendent person to the Board of Directors,forming a Compliance Committee of theBoard and providing enhanced compliancetraining. The CFTC received cooperation


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from the NYMEX in connection with thismatter.

Commodity Pool/Hedge Fund Fraud

In re Riley and Pressio CapitalManagement

On February 18, 2010, the CFTC simultane-ously filed and settled an administrativeenforcement action against Craig A. Rileyand his firm, Pressio Capital ManagementLP. The CFTC issued an order finding thatthe defendants engaged in commodity poolfraud involving the solicitation of more than$3 million from approximately 19 individu-als. The order found that defendants mademisrepresentations and issued false accountstatements to pool participants to concealtrading losses and misappropriations. TheCFTC order imposed a cease and desistorder, permanent trading and registrationbans, and a $1 million civil monetary penalty.In a related criminal action filed by the U.S.Attorney’s Office for the Central District ofCalifornia, Riley pleaded guilty to fraud inconnection with a scheme to defraud orobtain money or property by means of mate-rially false pretenses and was sentenced to 41months in prison and ordered to pay$3,044,384 in restitution.

CFTC v. Lake Dow LLC, et al.

On March 25, 2010, the U.S. District Courtfor the Northern District of Georgia orderedLake Dow Capital LLC and Ty Edwards topay more than $4 million in restitution andcivil monetary penalties. The order foundthat the defendants committed fraud inoperating the Aurora Investment Fund, acommodity pool and hedge fund, which

fraudulently solicited more than $26 millionfrom customers and misappropriated cus-tomer funds.

CFTC v. Enrique F. Villalba Jr.

On March 29, 2010, the CFTC filed a civilinjunctive action in the U.S. District Courtfor the Northern District of Ohio chargingEnrique F. Villalba Jr. and his firm, MoneyMarket Alternative LP, with operating a$37.5 million commodity futures Ponzischeme. The complaint charged that defen-dants misappropriated at least $3 million ininvestor funds and allegedly used more than$7 million of investor funds to make Ponzi-style payments to new and existing investors.The CFTC received cooperation from theU.S. Attorney’s Office for the NorthernDistrict of Ohio and the SEC in connectionwith this matter.

Foreign Currency Exchange (Forex) Fraud

CFTC v. Robert Mihailovich Sr., et al.

On July 27, 2010, the CFTC filed a civilinjunctive action in the U.S. District Courtfor the Northern District of Texas chargingRobert Mihailovich Sr. and Growth CapitalManagement LLC, with fraudulent solicita-tion in connection with a fraudulent forexscheme. The CFTC’s complaint alleged thatthe defendants fraudulently solicited andaccepted more than $30 million from morethan 90 customers to engage in futures andforex transactions. According to the com-plaint the defendants made false representa-tions about their trading expertise and tradingrecord.The CFTC received cooperation fromthe SEC and the National Futures Associa-tion in connection with this matter.


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CFTC v. Cook, et al.

On September 28, 2010, the U.S. DistrictCourt for the District of Minnesota entereda judgment against Trevor Cook, PatrickKiley, and their companies, Oxford GlobalAdvisors LLC, Oxford Global PartnersLLC, Universal Brokerage FX andUniversal Brokerage FX Diversified. TheCFTC complaint alleged that the defen-dants engaged in a massive forex schemethat defrauded 1,000 customers of more than$190 million. In related actions, the U.S.Attorney’s Office for the District ofMinnesota obtained a criminal indictmentagainst Cook for fraud and related chargesand the SEC filed a complaint against Cookcharging him with securities fraud. OnAugust 20, 2010, Cook was sentenced to 25years in prison and ordered to pay $158 mil-lion in restitution. The CFTC received coop-eration from the U.S. Attorney’s Office forthe District of Minnesota and the SEC.

CFTC v. Trader’s International ReturnNetwork, et al.

On September 8, 2010, the U.S. DistrictCourt for the Middle District of Floridaentered a judgment against Trader’sInternational Return Network (TIRN) andits president, David Merrick, for solicita-tion fraud, and misappropriation of cus-tomer funds involving a purported forexinvestment program. The court found thatthe defendants accepted at least $16.4 mil-lion from customers to participate inTIRN’s investment program, made falserepresentations about how the funds wereinvested and misappropriated funds for var-ious purposes. The CFTC received cooper-ation from the SEC and the U.S. Attorney’sOffice for the Middle District of Florida inconnection with this matter.

The Criminal Division, Department ofJustice

The Fraud Section of the Justice Depart-ment’s Criminal Division has made significantcontributions to the Task Force’s nationwideeffort to bring to justice those who commit finan-cial fraud. Fraud Section trial attorneys inves-tigate and prosecute cases throughout the coun-try and across transnational borders involvingthose who engage in market manipulation,investment fraud, corporate fraud, commoditiesand securities fraud.The following cases illustratehow the Fraud Section has combated these typesof abuses in the securities markets in 2010:

Market Manipulation

On January 28, 2010, Phillip W. Offill Jr., asecurities lawyer from Dallas, who had pre-viously been an enforcement and trial attor-ney for 15 years with the Fort Worth Officeof the SEC, was convicted on one count ofconspiracy to commit securities registrationviolations in connection with nine compa-nies. He was also convicted of conspiracy tocommit securities fraud and wire fraud inconnection with three of those companiesand nine counts of wire fraud. Offill partici-pated in a multi-million dollar pump-and-dump stock manipulation scheme. He wassentenced in April 2010 to 96 months inprison. The U.S. Attorney’s Office for theEastern District of Virginia also participated inthe prosecution. The FBI and USPIS investi-gated the case.

On October 29, 2010, George DavidGordon, a securities attorney, and RichardClark, a businessman and former stock bro-ker, were sentenced on charges stemmingfrom a scheme to defraud investors throughthe “pump-and-dump” manipulation ofpublicly traded stocks of three companies.


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Gordon and Clark were convicted at trial inMay 2010. Evidence at trial established thatthey obtained approximately $43 million inproceeds from the stock manipulation.Gordon was sentenced to 188 months inprison and Clark was sentenced to 151months in prison. The U.S. Attorney’sOffice for the Northern District ofOklahoma also participated in the prosecu-tion. The case was investigated by InternalRevenue Service-Criminal Investiga-tion(IRS-CI), the FBI and USPIS.

Investment Fraud

In September 2010, three principals of A&Oentities, a group of businesses that acquired andmarketed life settlements to investors, wereindicted for their alleged roles in a $100 millionfraud scheme. Christian M. Allmendinger,Adley H. Abdulwahab and David C. Whitewere charged for defrauding investors by mak-ing misrepresentations about such things asA&O’s prior success, its size and office loca-tions, the risks of its investment offerings andits safekeeping and use of investor funds.Theirfraud scheme involved more than 800 victimsthroughout the United States and Canada,many of whom were elderly. The indictmentalso alleged that Allmendinger, Abdulwahaband their co-conspirators routinely usedinvestor funds for personal enrichment.Subsequently, in February 2011, White plead-ed guilty to, and in March 2011, Allmendingerwas convicted at trial of, conspiracy, mail fraud,money laundering and securities fraud.Four defendants pleaded guilty in 2010 for theirroles in the A&O fraud scheme: TommeBromseth, an independent sales agent; Brent P.Oncale, A&O Resource Management Ltd.owner and operator; attorney Russell E.Mackert; and Eric Kurz. The cases are beingprosecuted jointly by the Criminal Division andthe U.S. Attorney’s Office for the Eastern

District of Virginia and investigated by theVirginia Financial and Securities Fraud TaskForce, which includes the USPIS, IRS-CI andthe FBI.

Corporate Fraud

On June 15, 2010, Lee Bentley Farkas, the for-mer chairman of a private mortgage lendingcompany, Taylor Bean & Whitaker (TBW),was arrested and charged in an indictment withconspiracy to commit bank, wire, and securitiesfraud, and multiple counts of bank fraud, wirefraud, and securities fraud in connection with amore than $2.9 billion fraud scheme that con-tributed to the failures of Colonial Bank andTBW. This is one of the largest cases in thenation involving the use of fraudulent account-ing in connection with mortgage-backed securi-ties and one of the largest bank fraud schemes inthe country. Subsequently, in April 2011,Farkas was convicted by a jury on all charges forperpetrating the massive fraud scheme. Also in2011, prior to Farkas’ trial, six co-conspiratorspleaded guilty for their roles in the fraudscheme. The U.S. Attorney’s Office for theEastern District of Virginia also participated inthe prosecution. The case was investigated bythe Office of the Special Inspector General forthe Troubled Asset Relief Program (SIG-TARP), the FBI, the Federal Deposit InsuranceCorporation-Office of the Inspector General,the Department of Housing and Urban Dev-elopment-Office of the Inspector General, theFederal Housing Finance Agency-Office of theInspector General, and IRS-CI.

Commodities Fraud

On June 8, 2010, in the Northern District ofTexas, Ray M. White, who operated CRWManagement LP (CRW), based in Mans-field, Texas, pleaded guilty to commoditiesfraud charges stemming from an off-exchange


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forex trading investment scheme. Whitereceived in excess of $7 million from investors,which he in turn used primarily to purchasehomes and automobiles, and to support otherfamily business operations. White specificallyadmitted that in July 2008 he contractedwith an investor to sell $50,000 in com-modities through CRW. White represent-ed to the investor that his funds would be usedto trade off-exchange forex contracts and thatCRW averaged seven percent per week returnsthrough off-exchange forex trading.White alsoadmitted that he provided false written accountstatements showing purported returns andrepresented to this investor that CRW wouldmaintain separate bank accounts for eachinvestor. White admitted that he either misap-propriated investor funds or paid them to otherinvestors. White admitted losing more than$86,500 on off-exchange forex trading, ratherthan making the seven percent per week prof-its he claimed on the moneys he received.Thecase is being jointly prosecuted by theCriminal Division and the U.S. Attorney’sOffice for the Northern District of Texas.TheCFTC, the SEC, the FBI and USPIS inves-tigated the case.

In December 2010, David Lewalski was in-dicted for his alleged participation in a $30 mil-lion investment scheme involving investmentsin the forex market. The indictment allegesthat Lewalski solicited money from investors inFlorida and throughout the country based onfalse statements that he could earn them up to10 percent interest per month through forextrading. He allegedly invested only a smallportion of the investor funds in trading activ-ities and generated little if any profits tradingforeign currency. Court documents allegethat Lewalski and his co-conspirators made“interest payments” to investors using otherinvestors’ money. The Criminal Division andthe U.S. Attorney’s Office for the MiddleDistrict of Florida are prosecuting the case.

The case was investigated by USPIS and theFlorida Department of Law Enforcement.

The Department of Labor

The Department of Labor’s (DOL) Em-ployee Benefits Security Administration (EBSA)conducts investigations of criminal violationsregarding fraud in connection with employee ben-efit plans such as embezzlement, kickbacks andfalse statements. During 2010, EBSA investigatedseveral significant cases in this area, including thefollowing:

United States v. Fuqua

On November 29, 2010, Knox H. Fuquawas sentenced to 12 months in prison forembezzling money from an employee ben-efit plan. Fuqua was a financial advisor whoalso served as trustee of the CommunityHealth Systems Inc. (CHS) 401(k) plan. InJune 2005, Fuqua transferred $600,000from the 401(k) plan to a CHS bankaccount and immediately used these fundsto purchase two certificates of deposit (CD)in the name of a fixed-income fund that hecontrolled. Fuqua then used these CDs ascollateral for a $600,000 line of credit onbehalf of the fixed-income fund, and there-after transferred this amount to anotherFuqua client that had requested the liquida-tion of its interest in the fixed-income fund.DOL investigated this matter with IRS-CI, USPIS and it was prosecuted by theU.S. Attorney’s Office for the SouthernDistrict of West Virginia.

United States v. Rogelio Ibanez Jr.

On April 14, 2010, Rogelio Ibanez Jr., anattorney who lived in Mission, Texas, wasindicted on six counts of wire fraud and fivecounts of theft or embezzlement from anemployee benefit plan. Ibanez was the plan


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administrator and trustee for a title company’s401(k) plan. Accordingly, he was responsible forensuring that the 401(k) plan was operated forthe exclusive benefit of the participants and theirbeneficiaries. Ibanez withheld funds fromemployees’ paychecks, employee 401(k) contri-butions, health insurance premiums, and lifeinsurance premiums but failed to remit severalthousand dollars to these plans for the benefitof the participants. DOL conducted this inves-tigation with the FBI, the Texas Departmentof Insurance and various other state and locallaw enforcement agencies. It was prosecutedby the U.S. Attorney’s Office for the SouthernDistrict of Texas.

United States v. Anthony A. James

On September 9, 2010, Anthony A. James, aninvestment advisor who operated James AssetAdvisory LLC (a Michigan corporation), wassentenced in federal district court to 163months in prison followed by 60 months ofsupervised release. The court also orderedJames to pay $2,667,762 in restitution to hisvictims. James was convicted on April 15,2010, on seven counts of mail fraud, six countsof wire fraud and one count of embezzlementfrom an employee benefit plan. From 2001through June 2009, Anthony James receivedover $5,300,000 from more than 40 investors,among them contributory ERISA-coveredemployee benefit plans. James told his clientsthat he would invest their funds in securities,bonds and mutual funds for their benefit. Hewould then create individualized asset alloca-tion reports suggesting investment options,backed by bogus quarterly account statementswhich tracked the investors’ money as if ithad actually been invested. Instead of invest-ing their money, however, he spent approxi-mately $2,500,000 for his personal use andpaid out approximately $2,800,000 to priorinvestors. DOL conducted this investigation

with the FBI. The U.S. Attorney’s Office forthe Eastern District of Michigan prosecutedthe case.

United States v. Rhonda Sue Irvin Cox

On July 15, 2010, Rhonda Sue Irvin Cox, pres-ident and owner of a third party plan adminis-trator firm, was charged with embezzlementfrom an employee benefit plan, and makingfalse statements in relation to documentsrequired by Employee Retirement IncomeSecurity Act (ERISA). Cox illegally embez-zled funds through 401(k) rollovers, conver-sions and contributions in excess of $700,000from 12 of the 56 employee retirement plansthat she administered. As a result of heractions, hundreds of individual participantsacross the United States suffered losses. OnFebruary 14, 2011, Cox pleaded guilty. DOLinvestigated this matter with the WarrenCounty Sheriff ’s Office in Lebanon, Ohio.The case was prosecuted by the U.S. Attorney’sOffice for the Southern District of Ohio.

Federal Bureau of Investigation

The FBI investigates matters relating tofraud, theft or embezzlement occurring within oragainst the national and international financialcommunity. The FBI focuses its financial crimesinvestigations in a number of areas, includingsecurities and commodities fraud. In 2010, theFBI participated in many of the SCFWG mat-ters discussed herein. The following highlightsseveral of its significant contributions in this area:

Petters Group Worldwide LLC

Thomas J. Petters used a successful corporationfor more than a decade to perpetrate a ponzischeme that defrauded hundreds of investorsof $3.4 billion. This case was the largest fraudcase prosecuted in the state of Minnesota.


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Petters, through his companies, Petters GroupWorldwide LLC (PGW) and PettersCompany Inc. (PCI), obtained loans fromhedge funds and investment groups for thestated purpose of financing sales to wellknown big box retailers, such as Costco andSam’s Club. The investigation revealed thatthe purchase and subsequent sale of merchan-dise to the retailers were actually fabricatedtransactions supported by fictional documen-tation.

As discussed below, the U.S. Attorney’s Officefor the District of Minnesota secured anindictment against Petters for mail and wirefraud, conspiracy, and money laundering inDecember 2008. On Dececember 2, 2009,following trial, Petters was convicted on allcounts. On April 8, 2010, Petters was sen-tenced to 50 years in prison, one of thelongest financial crimes-related sentences inhistory. In addition, co-conspirators DeannaColeman, Robert White, Larry Reynolds,Michael Catain, James Wehmhoff, GregBell and Harold Katz were each sentenced toprison in 2010. During 2010, the U.S.Attorney’s Office for the District ofMinnesota, the FBI and other SCFWGmembers continued their investigation intothe Petters ponzi scheme and several PCIhedge fund investors.

Scott Rothstein

On January 27, 2010, Scott Rothstein, anattorney with Rothstein, Rosenfeldt, &Adler (RRA) in Florida, pleaded guilty in theSouthern District of Florida to running a$1.2 billion Ponzi scheme involving the saleof shares in purported insurance settlementswith guaranteed rates of return on theinvestments. In actuality, there were no set-tlements. As part of his guilty plea,Rothstein agreed to relinquish 22 properties,

a dozen cars, a yacht and interest in 100business entities. On June 11, 2010, DebraVillegas, former chief operating officer ofRRA, pleaded guilty for her supporting rolein this scheme. She created false documenta-tion to help Rothstein sell investment oppor-tunities and later assisted him with launderingthe illicit proceeds. On December 8, 2010,Villegas was sentenced to 10 years in prison.

The Federal Trade Commission

During 2010, the FTC continued to focusits law enforcement efforts on scams that targetconsumers hit hard by the economic downturnand on unemployment in particular. Theseefforts, done as coordinated initiatives with stateand federal law enforcement partners, includedthe filing of 12 new FTC civil enforcementactions against operations that falsely claimedthey could provide consumers with guaranteedjobs, the opportunity to earn substantial incomefrom home, government grants or stimulusfunds, or needed health care insurance.

By February 2011, four of these new actionshad already been resolved. Seven prior actionsagainst scammers who likewise sought to takeadvantage of consumers’ vulnerability duringthe economic downtown were also recentlyresolved. The judgments in these matters totalmore than $80 million, a portion of which hasbeen suspended because of the defendants’inability to pay. The following are two of theFTC’s most significant recent matters:

Suit against 61 corporations and 10 indi-viduals in massive Internet governmentgrant and money making program scheme

On December 22, 2010, the FTC filed suitagainst the 10 individuals and 61 corporationsallegedly responsible for an Internet schemethat caused consumers to lose more than $275


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million since its inception in 2006. Accordingto the FTC’s complaint, the enterprise, whichoperated under the name “I Works,” trickedconsumers into providing their credit and debitcard information and repeatedly billed themfor Internet-based memberships that theynever agreed to join. The scheme lured con-sumers with allegedly false promises of govern-ment grants or money-making programs and,at its height, ensnared 15,000 consumers perday. To prevent the dissipation of assets duringlitigation, the FTC obtained a temporaryrestraining order, entered January 13, 2011,that freezes the assets of the alleged ringleaderand the I Works corporate defendants.

Final order in Internet scheme involvingfalse promises to consumers and surrenderof $3 million to the FTC

On October 4, 2010, the FTC obtained astipulated final order dismantling a far-reaching Internet enterprise that operatedunder the names “Google Money Tree,”“Google Treasure Chest,”and similar variations.According to the FTC’s complaint, the defen-dants used the name and logo of the Internetsearch company Google and false promises thatconsumers could earn $100,000 in six months tolure consumers into divulging their financialaccount information to pay a modest shippingfee for a work-at-home kit. The defendantsallegedly failed to adequately disclose that buy-ing the product would trigger automatic month-ly charges of $72.21. Under the terms of thestipulated final order, the defendants have sur-rendered assets in excess of $3 million for redressto consumer victims. The order also bans theindividuals behind the operation from everagain selling goods or services using “negativeoptions”—that is, transactions in which theseller interprets consumers’ silence or inactionas permission to charge them.

Financial Crimes Enforcement Network

In 2010, the Financial Crimes EnforcementNetwork (FinCEN) provided substantial finan-cial intelligence and analysis to the law enforce-ment community. For example:

FinCEN provided numerous securities fraudreferrals to the SEC’s Office of MarketIntelligence.The SEC opened at least one newenforcement case based on the December 2010hedge fund referral report to the Office ofMarket Intelligence, and has used the informa-tion in dozens of ongoing hedge fund cases.

FinCEN initiated a case study using theFinancial Industry Regulatory Authority(FINRA) data to identify reported suspi-cious activities of registered securities mem-bers who were barred from the industry.Strategic reports were published on suspi-cious activities with commercial mortgagebacked securities (CMBS) in October 2010.

FinCEN prepared a report for the SEC AssetManagement Unit on hedge funds reportedin SAR filings, which contained more than320 hedge fund firms and $150 billion in sus-picious activity.

In February and March 2010, FinCEN pro-vided research to the Iowa Attorney General’sOffice in support of a criminal case involvinginsider trading, market manipulation, checkfraud and embezzlement. FinCEN identified$5 million in reported suspicious activities, aswell as 11 related accounts and numerous asso-ciated shell companies.

In July and August 2010, FinCEN providedsupport for a joint FBI and SEC case involv-ing interstate transactions of an unregisteredsecurity, manipulative and deceptive devices,


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mail fraud and wire fraud. FinCEN identified$7 million in reported suspicious activities, 20bank and credit union accounts and 3 casinoaccounts.

From March through October 2010,FinCEN provided support to the FloridaAttorney General’s Office in support of acriminal investigation of a Ponzi scheme.FinCEN identified $8 million in suspiciousactivities.

In November 2010, FinCEN supported anIRS-CI case involving hedge fund portfoliomanagers suspected of defrauding investors.FinCEN identified $85 million in reportedsuspicious activities, numerous hedge fundsand associated individuals.

FinCEN identified 451 Bank Secrecy Act (BSA)reports on 241 barred members that indicated$382 million in suspicious financial activity, suchas money laundering, forgery, market manip-ulation, hedge fund fraud, wire transfer fraudand embezzlement. A significant portion ofthis activity occurred after the members werebarred from the securities industry.

Internal Revenue Service-CriminalInvestigation

The IRS-CI fills a unique niche in the fed-eral law enforcement community. Agents of IRS-CI conduct forensic financial probes and investi-gate corporations and their executives for taxfraud, money laundering and securities fraud. Itsfinancial investigative expertise is necessarilycalled upon to unravel the complex myriad ofinvestment fraud schemes perpetrated by defen-dants who prey on individuals.For IRS-CI, corpo-rate securities fraud encompasses violations of theInternal Revenue Code (IRC) and related statutescommitted by large, publicly traded or private cor-porations, and/or by their senior executives andtheir principal officers.

During 2010 IRS-CI has been involved inapproximately 86 investigations that involvedsecurities fraud.


In connection with the FBI’s contributionsto the SCFWG, IRS-CI also played a sig-nificant role in the ongoing investigation ofthis matter.

Scott Rothstein

In connection with the FBI’s contributionsto the SCFWG, IRS-CI also played a sig-nificant role in this matter.

Trevor Cook

In connection with the U.S. Attorney’sOffice for the District of Minnesota’s con-tributions to the SCFWG, IRS-CI played asignificant role in this matter.

The Securities and Exchange Commission

To help protect investors and maintain fairmarkets, the SEC brings enforcement actionsagainst individuals and organizations foralleged violations of securities laws. Throughthe Division of Enforcement, the SEC stopsfraud, seeks appropriate penalties and dis-gorgement from wrongdoers and returns fundsto injured investors.

In 2010, the SEC filed 679 actions, whichresulted in more than $3.26 billion in ordereddisgorgement and penalties combined. Thefollowing is an outline of certain significant SECenforcement cases in 2010. For further informa-tion on selected enforcement cases, please see“Litigation Releases” at http://www.sec.gov/lit-igation/litreleases.shtml.


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Actions Related to the Financial Crisis

The SEC has continued to devote signifi-cant resources to identifying and holdingaccountable those firms and individuals whocommitted securities law violations linked tothe financial crisis:

In February 2010, the SEC charged StateStreet Bank and Trust with misleadinginvestors about their exposure to subprimeinvestments while selectively disclosing morecomplete information only to certain favoredinvestors. The SEC alleged that State Streetcontinued to market the fund as having bettersector diversification than a typical moneymarket fund, although the fund was almostentirely invested in subprime residential mort-gage-backed securities and derivatives thatmagnified its exposure to subprime securities.To settle the SEC’s action, State Street agreedto pay more than $300 million to investorswho lost money during the subprime marketmeltdown in 2007.

In April 2010, the SEC brought administrativeproceedings against Morgan Keegan &Company and Morgan Asset Managementand two employees, including a portfolio man-ager, for fraudulently overstating the value ofsecurities backed by subprime mortgages. TheSEC alleges that Morgan Keegan failed toemploy reasonable procedures to internally pricethe portfolio securities in five funds managed byMorgan Asset, and consequently did not cal-culate accurate “net asset values” (NAV) for thefunds. Morgan Keegan recklessly publishedthese inaccurate daily NAVs, and sold shares toinvestors based on inflated prices.The miscon-duct masked the true impact of the subprimemortgage meltdown on these funds frominvestors. A hearing before an administrativelaw judge will be held.

In another important action in April 2010, theSEC filed charges against Goldman Sachs &Co. and one of its employees, Fabrice Tourre,alleging fraud in connection with the marketingof a synthetic CDO, in which Goldman repre-sented that the portfolio of securities underlyingthe CDO had been selected by a neutral, objec-tive third party when, in reality, a hedge fundinvestor at whose request the CDO had beenstructured and whose interests were directlyadverse to CDO investors, heavily influencedthe portfolio selection. The Goldman market-ing materials failed to disclose the hedgefund’s role in the transaction, its adverse eco-nomic interests, or its role in the portfolioselection. On July 20, 2010, the court entered aconsent judgment in which Goldman agreedto pay $550 million to settle the SEC’s charges.The SEC’s litigation continues against FabriceTourre.

In June 2010, the SEC charged Lee B.Farkas, the former chairman of the oncelargest non-depository mortgage lender in thenation, Taylor, Bean & Whitaker (TBW),with allegedly orchestrating a large-scale securi-ties fraud scheme and then attempting todefraud the U.S. Treasury’s Troubled AssetRelief Program (TARP) to cover up the scheme.TBW sold more than $1.5 billion worth of fab-ricated or impaired mortgage loans and securi-ties to Colonial Bank which were falsely report-ed to the investing public as high-quality, liquidassets. Farkas was also responsible for a bogusequity investment that caused ColonialBancGroup to misrepresent that it had satisfieda prerequisite necessary to qualify for TARPfunds.The Treasury Department never awardedColonial BancGroup any TARP funds. Thiscase was the product of extensive cooperationwith DOJ, FBI, SIGTARP, and other lawenforcement partners within the Task Force.


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In July 2010, the SEC filed a settled actionagainst Citigroup Inc. and two executives formisleading investors about the company’sexposure to subprime mortgage-relatedassets. Between July and mid-October 2007,Citigroup represented during earnings callsand in public filings that subprime exposurein its investment banking unit was $13 billionor less, when in fact it was more than $50 bil-lion. In the settlement, Citigroup agreed topay a $75 million penalty and the executivesagreed to injunctive relief and to pay $100,000and $80,000 respectively.

Later in July, the SEC accepted settlementoffers from three former officers of NewCentury Financial Corporation: Brad A.Morrice, the former chief executive officer(CEO) and co-founder; Patti M. Dodge, theformer chief financial officer (CFO); andDavid N. Kenneally, the former controller.The SEC’s complaint alleged, among otherthings, that New Century’s second and thirdquarter 2006 Forms 10-Q and two late 2006private stock offerings contained false andmisleading statements regarding its subprimemortgage business. The complaint furtheralleged that Morrice and Dodge knew aboutcertain negative trends in New Century’s loanportfolio from reports they received and thatthey participated in the disclosure process, butthey did not take adequate steps to ensure thatthe negative trends were properly disclosed.The SEC’s complaint also alleged that in thesecond and third quarters of 2006, Kenneally,contrary to Generally Accepted AccountingPrinciples, implemented changes to NewCentury’s method for estimating its loan repur-chase obligation and failed to ensure that NewCentury’s backlog of pending loan repurchaserequests were properly accounted for, resultingin an understatement of New Century’s repur-chase reserve and a material overstatement ofNew Century’s financial results.

In October 2010, the SEC announced thatformer Countrywide Financial CEO AngeloMozilo would pay a record $22.5 millionpenalty to settle SEC charges that he andtwo other former Countrywide executivesmisled investors as the subprime mortgagecrisis emerged. The settlement also perma-nently barred Mozilo from ever again servingas an officer or director of a publicly tradedcompany. Mozilo’s financial penalty is thelargest ever paid by a public company’s seniorexecutive in an SEC settlement. Mozilo alsoagreed to $45 million in disgorgement of ill-gotten gains to settle the SEC’s disclosureviolation and insider trading charges againsthim, for a total financial settlement of $67.5million, monies that are to be returned toharmed investors.

Actions Involving Offering Frauds/Ponzi Schemes

Offering frauds comprise a significant por-tion of the cases brought by the SEC each year.Many offering frauds involved Ponzi schemeswhere investors are guaranteed unrealisticreturns for their investment. In these actions,the SEC seeks where possible to freeze assetsin order to maximize the recovery to investorsand prevent new investors from being harmed.

In 2010, the SEC participated in OperationBroken Trust, a national investment fraud opera-tion discussed further below. The SEC’s enforce-ment efforts contributed 35 matters to the oper-ation. The 35 SEC matters involved 130 defen-dants/respondents who caused approximately20,804 investors an estimated $1.825 billion inlosses. In addition:

The SEC continued to vigorously pursuewrongdoers in the $50 billion Bernard MadoffPonzi scheme. In February, the SEC chargedDaniel Bonventre, Madoff ’s director of oper-


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ations, with falsifying accounting records toenable the multi-billion dollar fraud to continueand to illegally enrich himself, Madoff andMadoff ’s family and employees. The complaintalleged that Bonventre played an essential role inthe fraud by creating bogus financial records togive Bernard Madoff Investment Securities(BMIS) the appearance of legitimacy.

In November 2010, the SEC obtained partialconsent judgments permanently enjoiningRobert M. Jaffe, Maurice J. Cohn, Marcia B.Cohn and Cohmad Securities Corp. TheSEC’s amended complaint alleges that thesedefendants referred hundreds of investors toMadoff and BMIS, while the defendants wereaware of and failed to disclose facts that shouldhave raised serious questions about the proprietyof the Madoff investment. The investorsreferred to BMIS by the defendants providedBMIS with more than one billion dollars.

Also in November 2010, the SEC chargedAnnette Bongiorno and JoAnn Crupi, twolongtime employees of BMIS, with playing keyroles in the Madoff Ponzi scheme. Amongother things, the SEC complaint alleges thatBongiorno regularly created false books andrecords and helped mislead investors in tele-phone conversations and through account state-ments and trade confirmations that reportedsecurities transactions that never happened andpositions that never existed. Bongiorno also cre-ated false trades in her own BMIS accountsthat enabled her to cash out millions of dol-lars more than she deposited. The SEC’scomplaint against Crupi alleges that she helpedfacilitate the fraud and mislead investors, audi-tors and regulators into believing that BMISwas a legitimate enterprise. When the fraud wason the verge of collapse, Crupi helped decidewhich accounts should be cashed out and pre-pared checks for those selected investors, manyof whom were friends or family of Madoff.TheSEC is litigating these actions and seeking dis-

gorgement and civil penalties. The SEC is con-tinuing its investigation as to others.

Actions Involving Insider Trading

The SEC also brought numerous insidertrading cases in 2010. Many of these casesinvolved Wall Street professionals and corporateinsiders who undermined the level playing fieldthat is fundamental to the fair functioning ofthe capital markets.

In the Galleon matter, which the SEC initiallycharged in October 2009, the SEC continued topursue and hold accountable those who partici-pated in a massive insider trading scheme thatgenerated more than $52 million in illegalprofits or losses avoided. The SEC’s initialcomplaint alleged that the billionaire RajRajaratnam paid bribes in exchange for insideinformation about corporate earnings ortakeover activity and then used the non-publicinformation to illegally trade on behalf of hisNew York-based hedge fund advisory firmGalleon Management LP. In related Galleonactions, the SEC charged 19 other high-rank-ing corporate executives and insiders involvedin the insider trading scheme. During 2010,the SEC settled with four of the individual tip-pers and one of the entities involved.The SECis seeking permanent injunctions, disgorge-ment and penalties in the remaining actionsagainst Rajaratnam and others. The SEC’sinvestigation is continuing.

In late 2009, the SEC charged three WallStreet lawyers for tipping inside information inexchange for kickbacks and six Wall Streettraders and a proprietary trading firm involvedin a $20 million insider trading ring. In thisaction, the SEC alleged that two attorneys inthe New York office of international law firmRopes & Gray had access to confidentialinformation about at least four major proposedcorporate transactions in which the firm’s


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clients participated.Through a friend and fel-low attorney, these lawyers tipped this insideinformation to a proprietary trader atSchottenfeld Group. In 2010, the SEC filedtwo additional complaints naming three otherdefendants for conduct related to thatdescribed in the initial complaint and also set-tled with two defendants. Finally, the SECfiled in November 2010 two additional com-plaints for related conduct, one naming FranzTudor as a defendant and a second complaintnaming Thomas Hardin and LanexaManagement LLC as defendants.The litiga-tion continues as to certain defendants.

In August 2010, in an expedited investigationspearheaded by the Division of Enforce-ment’s Market Abuse Unit, the SEC swiftlycharged two residents of Madrid, Spain, withinsider trading and obtained an emergencyasset freeze. The residents made nearly $1.1million by trading while in the possession ofmaterial non-public information in advanceof a public announcement of a multi-billiondollar tender offer by BHP Billiton Plc toacquire Potash Corp. of Saskatchewan Inc.One of the defendants is the head of a re-search arm at Banco Santander S.A., a Spanishbanking group advising BHP on its bid. Inaddition to the emergency relief, the SEC isseeking permanent injunctions, disgorge-ment and penalties. The SEC’s investiga-tion is continuing.

Municipal Bond Offerings and Pay-to-Play

In an investigation handled by the newly-cre-ated Municipal Securities and Public PensionsUnit, the SEC in August 2010 filed its firstaction ever against a state for violations of thefederal securities laws. The SEC charged theState of New Jersey with securities fraud for mis-representing and failing to disclose to investorsbillions of dollars of municipal bond offerings

that it was underfunding the state’s two largestpension plans.New Jersey settled to a cease-and-desist order. In determining to accept this settle-ment, the SEC considered the cooperationafforded the SEC’s staff during the investigationand certain remedial acts taken by the state. Inaddition:

On October 28, 2010, U.S. District JudgeDana M. Sabraw approved a settlementbetween the SEC and four former San DiegoCity officials for their roles in misleadinginvestors in municipal bonds about the city’sfiscal problems related to its pension andretiree health care obligations. Former CityManager Michael Uberuaga, former Auditor& Comptroller Edward Ryan, formerDeputy City Manager for Finance PatriciaFrazier, and former City Treasurer MaryVattimo, without admitting or denying theallegations, consented to the entry of finaljudgments that permanently enjoin themfrom future violations of certain federal secu-rities law provisions. Under the settlementterms, Uberuaga, Ryan and Frazier eachpaid a penalty of $25,000 and Vattimo paida penalty of $5,000. This marks the firsttime that the SEC secured financial penal-ties against city officials in a municipalbond fraud case.

On November 18, 2010, the SEC chargedformer Quadrangle Group principal StevenRattner with participating in a widespreadkickback scheme to obtain investments fromNew York’s largest pension fund. Rattneragreed to settle the SEC’s charges by paying$6.2 million and consenting to a bar fromassociating with any investment adviser orbroker-dealer for at least two years.

Separately, on April 15, 2010, QuadrangleGroup LLC and Quadrangle GP InvestorsII L.P. consented to the entry of a judgmentthat permanently enjoins them from future


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violations of certain federal securities lawprovisions and ordered them to pay a $5 mil-lion penalty.

Actions Involving Issuer Disclosure andReporting Violations

The SEC also brought numerous cases dur-ing 2010 involving financial fraud, issuer disclo-sure and reporting violations at public compa-nies. For example:

In July 2010, the SEC filed an action againstDell Inc., for failing to supply accurate andcomplete information about the company’sfinancial condition.The SEC also charged Dellchairman and CEO Michael Dell, formerCEO Kevin Rollins and former CFO JamesSchneider for their roles in the disclosure viola-tions. Additionally, the SEC charged Schneider,former regional vice president of financeNicholas Dunning, and former assistant con-troller Leslie Jackson for their roles in theimproper accounting. Dell agreed to pay a $100million penalty to settle the SEC’s charges;Michael Dell and Rollins each agreed to pay a$4 million penalty; and Schneider agreed to pay$3 million in disgorgement and penalties.Dunning and Jackson have also settled.

In March 2010, the SEC charged three formersenior executives and a former director of anOmaha-based database compilation company,infoUSA Inc., for their roles in a scheme inwhich the former CEO and Chairman, VinodGupta, fraudulently used corporate funds topay almost $9.5 million in personal expenses tosupport his lavish lifestyle.Additionally, Guptacaused the company to enter into $9.3 millionof undisclosed related party transactions withGupta’s other entities. The SEC also allegedthat the former chairman of the audit commit-tee, Vasant Raval, failed to respond appropri-ately to various red flags concerning Gupta’sexpenses and related party transactions. Further,

two of the company’s former chief financialofficers rubber-stamped hundreds of Gupta’sreimbursement requests despite the fact thatthe requests lacked sufficient explanation ofbusiness purpose and supporting documen-tation. Gupta settled this action and agreedto pay more than $7.4 million in disgorgementand to an officer and director bar. Raval agreedto settle this action and to a $50,000 penaltyand an officer and director bar. The actionagainst the two former CFOs is in litigation. Ina related administrative proceeding, infoUSAconsented to a cease-and-desist order.

In January 2010, the SEC brought an actionagainst General Re Corporation for its in-volvement in separate schemes by AIG andPrudential Financial to manipulate and falsi-fy their reported financial results. Gen Rearranged to sell financial products to AIG andPrudential for the sole purpose of enablingthose companies to manipulate their account-ing results and mislead investors. Gen Reagreed to settle with the SEC and pay $12.2million in disgorgement and prejudgmentinterest.

The U.S. Attorneys’ Offices

U.S. Attorney’s Office for the District ofColorado

Philip R. Lochmiller and Phillip R.Lochmiller II

Owners and operators of Valley Investments,Philip R. Lochmiller of Mack, Colorado, andPhilip R. Lochmiller II presently of Olathe,Kansas, as well as a Valley Investments employee,Shawnee N. Carver of Grand Junction, Colorado,were indicted by a federal grand jury in Denver onDecember 15, 2009, on conspiracy and fraudcharges.Between 2000 and 2009, Lochmiller andLochmiller II caused Valley Investments to


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receive approximately $31 million from approxi-mately 400 investors as part of the securities andmail fraud scheme charged in the indictment.Lochmiller II and Carver both entered guilty pleasin 2010 and are scheduled for sentencing after trialof Philip Lochmiller, which will take place in July2011. This case was investigated by the FBI, IRS-CI and USPIS, with substantial assistance fromthe State of Colorado Division of Securities andthe Mesa County Sheriff ’s Office.

U.S. Attorney’s Office for the SouthernDistrict of Illinois

Nicholas Smirnow

Nicholas A. Smirnow, formerly of Ontario,Canada, was charged on May 28, 2010, in a crim-inal complaint in the Southern District of Illinoiswith various counts of conspiracy, mail fraud, wirefraud and securities fraud in connection with aninternational high yield investment and Ponzischeme that resulted in losses of $70 million tomore than 40,000 investors in more than 120countries in six continents. The scheme operatedfrom Canada and the Philippines, through a web-site hosted in the Netherlands, and through acompany supposedly based in the Turks &Caicos Islands in the Caribbean. Smirnowcalled his investment scam “Pathway toProsperity” and he used his Internet website tosnare investors. The Pathway to Prosperity web-site claimed that investors could earn extremelyhigh rates of returns with minimal or no risk in 7,15, 30 and 60-day “plans.” While some earlierinvestors received a substantial return on theirinvestment, most investors lost everything. Thecomplaint alleges that Pathway to Prosperitymade few, if any, legitimate investments.The casewas investigated by the USPIS-Chicago Div-ision, with substantial assistance from the IRSand the Ontario Provincial Police in Canada.Assistance was also provided by the Rotterdam-Rijnmond Regional Police in the Netherlandsand the Illinois Securities Department.

U.S. Attorney’s Office for the District ofMinnesota


As explained above in connection with theFBI’s contributions to the SCFWG, in April2010, the U.S. Attorney’s Office for Minnesotasecured a 50-year prison term in the case againstPetters, one of the longest financial crimes-relatedsentences. In addition, five other individual con-spirators were sentenced to prison in 2010. TheU.S. Attorney’s Office, working with the FBI, theIRS-CI, and USPIS, is continuing its investiga-tion into the Petters ponzi scheme and severalPCI hedge fund investors.

Trevor Cook

In August 2010, Trevor Cook was sentencedto 25 years in prison for orchestrating a Ponzischeme that collectively cost more than 900investors $158 million. Cook, of Apple Valley,Minnesota, was charged with and pleadedguilty to one count of mail fraud and one countof tax evasion in connection with his crime. Inimposing the sentence, U.S. District Court JudgeJames M. Rosenbaum described Cook’s offenseas “wretched, tawdry, and cheap.” In his pleaagreement, Cook admitted that from January2007 through July 2009, he carried out a schemeto defraud people by purportedly selling invest-ments in a foreign currency trading program. Inreality, however, he diverted a substantial portionof the money provided him for other purposes,including making payments to previous investors;providing funds to Crown Forex SA, in an effortto deceive Swiss banking regulators; purchasingownership interest in two trading firms; buying areal estate development in Panama; paying per-sonal expenses, including gambling debts; andacquiring a well-known mansion in Minneapolis.


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Gregory Malcolm Bell

Gregory Malcolm Bell was sentenced onSeptember 30, 2010, to six years in prison onone count of wire fraud. Bell’s hedge fund,Lancelot Investment Management, had almostall its money invested in Petters Company Inc.(PCI) promissory notes. When PCI fell behindin its payments on those notes, Bell devised aplan to make it appear to his investors that PCIwas still paying on time. The result was 86 sham“round trip” transactions, where Lancelot gavemoney to PCI, which PCI then used to makepayments back to Lancelot. As a result of thescheme, Bell was able to raise more than $200million from 43 new investors during 2008.

U.S. Attorney’s Office for the District ofNew Jersey

Nevin Shapiro

The former owner and chief executive officerof Capitol Investments USA Inc., Nevin Shapiro,pleaded guilty on September 15, 2010, in theDistrict of New Jersey, for his role in a multi-million dollar investment fraud scheme. FromJanuary 2005 through November 2009, Shapirosolicited investors from New Jersey and through-out the United States through Capitol, tellingthem that he would use their money to fund hiswholesale grocery distribution business. As a resultof these solicitations, investors sent more than$880 million to Shapiro and Capitol during thistime period. Capitol had virtually no income gen-erating business at that time and Shapiro used newinvestor funds to make principal and interest pay-ments to existing investors, as well as to fund hisown lavish lifestyle. Shapiro used investor funds topay illegal sports gambling debts, to purchase floorseats at Miami Heat basketball games and to makepayments on his Riviera yacht and his residence in

Miami Beach. Shapiro also used investor funds tomake payments to student athletes attending alocal university in the Miami area and to makedonations to the university. The fraud schemeresulted in an estimated loss of $89 million to 75victims. The case was investigated by the FBI andIRS-CI, with coordination from the SEC, whichpreviously had filed parallel civil charges.

U.S. Attorney’s Office for the EasternDistrict of New York

Philip Barry

On November 17, 2010, investment managerPhilip Barry was convicted at trial of one count ofsecurities fraud and 33 counts of mail fraud in con-nection with his operation of a long-standing andlarge-scale Ponzi scheme. Approximately 800individuals invested a total of more than $40 mil-lion in Barry’s business, the Leverage Group. Toinduce investments and discourage withdrawals,Barry, among other things, guaranteed specifiedpositive rates of return, issued account statementsthat showed growing account balances, represent-ed that investing in the Leverage Group was safeand promised that withdrawals could be made eas-ily. The evidence at trial established that Barryactually was running a Ponzi scheme, payingreturns to Leverage Group investors not from anyprofits earned on investments, but rather fromexisting investors’ deposits or money paid by newinvestors. Barry never produced or earned the ratesof return that he advertised and cited in clients’account statements. Rather, the positive rates ofreturn were simply pre-determined interest ratesmade up by Barry. In bankruptcy testimony givenby Barry, he estimated that he owed his investors$60 million. In bankruptcy proceedings, the U.S.Trustee Program secured from Barry a waiver ofchapter 7 discharge.


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U.S. Attorney’s Office for the SouthernDistrict of New York

Insider Trading Cases

In 2010, the U.S. Attorney’s Office in theSouthern District of New York (USAO SDNY)continued its successful prosecutions of insidertrading crimes, filing charges against 15 individ-uals, nine of whom have since pleaded guilty.Also in 2010, the USAO secured guilty pleasfrom six individuals who were charged withinsider trading crimes in late 2009. Among thosewho pleaded guilty in 2010 were co-conspiratorsof Raj Rajaratnam, who served as the managingmember of Galleon Management LLC, and as aportfolio manager for Galleon TechnologyOffshore Ltd. Rajaratnam was charged for insid-er trading crimes in late 2009 and in May 2011,he was convicted on securities fraud charges.

In January 2010, Anil Kumar, formerly a sen-ior partner and director at the global manage-ment consulting firm McKinsey & Company,pleaded guilty to conspiring to commit insidertrading crimes with Rajaratnam. Rajiv Goel, aformer executive at Intel Corp., pleaded guilty inFebruary 2010 to conspiracy and securities fraudcharges stemming from his involvement in aninsider trading scheme with Rajaratnam.

Mark Kurland, a senior managing director atNew Castle Partners; Ali Hariri, formerly anexecutive at Atheros Communications Inc.;Robert Moffat Jr., a former executive with IBM;and David Plate, formerly a proprietary trader atSchottenfeld Group LLC, each pleaded guilty in2010 to separate charges related to insider tradingschemes.

In November 2010, Don Ching Trang Chu,a/k/a “Don Chu,” was arrested on conspiracycharges in connection with his employment at anexpert networking firm. Chu was charged withconspiring to promote the firm’s consultation

services by arranging for insiders at publicly-trad-ed companies to provide material, nonpublicinformation to the firm’s hedge fund clients forthe purpose of executing profitable securitiestransactions. In December 2010, James Fleish-man, an executive for an expert-networking firm,was charged in a complaint with wire fraud andconspiracy charges for conspiring to provide con-fidential information, including material, non-public information, to the firm’s clients, includinghedge funds. Mark Anthony Longoria, WalterShimoon and Manosha Karunatilaka werecharged with the same offenses in the same com-plaint in connection with their employment asconsultants for the firm.

Daniel DeVore, formerly a Global SupplyManager for Dell Inc., who worked as a consult-ant for an expert-networking firm, pleaded guiltyin December 2010 to an information charginghim with wire fraud and conspiracy to commitwire fraud and securities fraud in connection withhis work as a consultant. Also in December 2010,Winifred Jiau, a/k/a “Wini,” was charged in acomplaint for her involvement in an insider trad-ing scheme. Jiau was charged with conspiring tocommit securities fraud and engaging in securi-ties fraud, by selling material, nonpublic informa-tion about publicly traded companies to multiplehedge funds for the purpose of executing prof-itable securities transactions.

Joseph Contorinis, a former hedge fundmanager, was found guilty at trial in October2010 for his participation in a scheme to tradeon inside information obtained from a formerUBS banker that resulted in more than $7 mil-lion in illegal profits. Contorinis was subse-quently sentenced to six years in prison.

In November 2010, Yves Benhamou, a citi-zen and resident of France, was charged in acomplaint with engaging in an insider tradingscheme in which he used his dual roles as anadviser on a clinical drug trial and as a private,


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paid consultant to provide material, nonpublicinformation about the drug trial’s progress to aportfolio manager of a hedge fund group. IgorPoteroba, a former investment banker in theHealthcare Group of UBS Securities LLC, andAlexei P. Koval, a/k/a “Aleksey Koval,” werearrested in March 2010 on charges relating totheir participation in an insider trading schemein which Poteroba obtained inside informationabout six mergers and acquisitions that certainUBS clients were contemplating and thenpassed that information to Koval.

Investment Frauds

In 2010, the USAO SDNY continued to in-vestigate and prosecute matters related to theBernard Madoff Ponzi scheme. In November2010, Daniel Bonventre, Annette Bongiorno,Joann Crupi, Jerome O’Hara and George Perez,all former employees of Bernard L. MadoffInvestment Securities LLC (BLMIS), werecharged in a superseding indictment with, amongother crimes, conspiracy, falsifying records of abroker-dealer and falsifying records of an invest-ment adviser. Civil forfeiture complaints were filedagainst more than $7 million in assets belonging toformer BLMIS employees Annette Bongiornoand Joann Crupi.

In December 2010, Carl J. Shapiro and var-ious related people and entities agreed to forfeit$625 million to the United States, all of whichwill be made available to the victims of BernardL. Madoff and BLMIS.

The estate of Jeffry M. Picower agreed inDecember 2010 to forfeit $7,206,157,717 to theUnited States, representing all the profits thatPicower withdrew from BLMIS, the fraudulentinvestment advisory business owned and oper-ated by Bernard L. Madoff.

In addition to the Madoff scam, the USAOSDNY also prosecuted significant investmentfraud matters.

Vance Moore II and Walter Netschi werecharged with operating a fraud scheme involv-ing the sale of investments in automated tellermachines (ATMs) that would purportedly beplaced in retail locations around the country.The defendants successfully solicited more than$80 million in investments. In fact, approxi-mately 90 percent of the machines purportedlysold to the victims did not exist or were notowned by the defendants. Moore pleaded guiltyin October 2010, just prior to trial, and Netschiwas convicted in November 2010.

U.S. Attorney’s Office for the WesternDistrict of North Carolina

Keith Franklin Simmons

On December 16, 2010, Keith FranklinSimmons was convicted at trial on all counts ofsecurities fraud, wire fraud and money launderingrelating to his leadership of a $40 million forexfraud scheme. Simmons was the owner of BlackDiamond Capital Solutions and claimed to haveaccess to a secret foreign currency exchange trad-ing platform. The scheme took in more than $40million from more than 400 investors around thecountry, many of whom invested their life savings.Prior to Simmons’ trial, four other defendants —Deanna Salazar, James Jordan, Steven Lacy andRoy Scarboro — pleaded guilty to their involve-ment in the Black Diamond scheme, admittingthat although Simmons told them his investmentswere legitimate, they each deceived investorsthemselves in some way. The case was investigat-ed by the FBI and IRS-CI.

Terry Welch

Terry Scott Welch was a vice president atWachovia Bank and pleaded guilty to an $11million conspiracy to defraud Wachovia. Welchdirected four co-conspirators John Cousar,Delmar Dove, Jerry Little and Robert Otto, allof whom also pleaded guilty to transmit falseinvoices through their respective businesses to


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Wachovia. Thereafter, Welch caused Wachoviato issue payment for the invoices totaling morethan $11 million during the nearly eight-yeartime period of the conspiracy. In addition, Welch,Cousar and Dove pleaded guilty to tax chargesarising from the scheme.The case was investigat-ed by the USPIS, IRS-CI, and the NorthCarolina State Bureau of Investigation.

Bryan Noel

Bryan Noel was convicted in March 2010and later sentenced to 25 years in prison forleading an investment fraud that took morethan $10 million from more than 100 victims,most of whom were retirees. His co-conspira-tor, Alex Klosek, received 87 months in prison.Noel diverted more than $4 million of theretirees’ funds to his risky start-up companies,including a mineral exploration venture in Peruand a composite lumber company, both ofwhich failed. Investors were not told of thesediversions. The case was investigated by theFBI and North Carolina Secretary of State’sOffice, Securities Division.

U.S. Attorney’s Office for the EasternDistrict of Pennsylvania

Robert Stinson

Robert Stinson Jr. was charged in 2010 withmail and wire fraud, money laundering and filingfalse tax returns for his participation in a Ponzischeme that caused more than $17 million inlosses. Stinson claimed to operate several hedgefunds known as “Life’s Good” and sought invest-ments from individuals with IRAs and claimedthat he would make investments in real estateand obtain security for the loans. He toldprospective investors that their investmentsposed very little risk because of the security.Instead of investing the money, Stinson allegedlyused it to pay his personal and other expenses.

Stinson bilked hundreds of investors. The casewas investigated by the FBI, USPIS and IRS-CI.

U.S. Attorney’s Office for the EasternDistrict of Texas

Joseph Blimline

Joseph Blimline pleaded guilty in the EasternDistrict of Texas on August 31, 2010, for his rolein one of North Texas’ largest oil and gas invest-ment fraud schemes, which defrauded 7,700investors of more than $485 million. Blimlinewas a majority owner of Provident Royalties, aninvestment company. Beginning in 2006, Blimlineand others involved at Provident Royalties madefalse representations and failed to disclose othermaterial facts to their investors to induce theinvestors into providing payments to Provident.The investors were not told that Blimline hadreceived millions of dollars of unsecured loans andhad been previously charged with securities fraud.Blimline issued approximately 20 oil and gasofferings, and used a significant amount of themoney raised in these offerings to purchase oiland gas assets from earlier offerings and to paydividends to earlier investors in order to facilitatethe scheme. Blimline also pleaded guilty tocharges related to a separate, but similar oil andgas scheme based in Michigan that defraudedinvestors out of $50 million. The criminal caseagainst Blimline was investigated by the FBI, incoordination with the SEC, which previouslyhad filed a civil action to freeze the assets ofBlimline and others.

U.S. Postal Inspection Service

USPIS investigated a host of significantenforcement efforts in 2010, including, but notlimited to, these cases discussed above: the caseagainst David Lewalski for an alleged $30 mil-lion investment fraud scheme; the prosecutionof seven individuals for their alleged roles in the


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A&O investment fraud scheme; and the prose-cution of George David Gordon and RichardClark for a $43 million pump-and-dump stockmanipulation scheme.

Operation Broken Trust

Several actions discussed above were a partof Operation Broken Trust. Operation BrokenTrust was a nationwide Task Force operationtargeting investment fraud. The operationinvolved enforcement actions against 310 crim-inal defendants and 189 civil defendants forfraud schemes that harmed more than 120,000victims throughout the country.

The operation was conducted in conjunctionwith the SCFWG including with variousDepartment of Justice components — the U.S.Attorneys’ Offices, the FBI, the Criminal and CivilDivisions and the U.S. Trustee Program — as wellas the SEC, USPIS, the CFTC, IRS-CI, theFTC, the U.S. Secret Service and the NationalAssociation of Attorneys General.

The operation’s criminal cases involved morethan $8 billion in estimated losses and the civilcases involved estimated losses of more than $2billion. Operation Broken Trust was the firstnational operation of its kind to focus on abroad array of investment fraud schemes thatdirectly preyed upon the investing public.

A LOOK AHEAD

The SCFWG will continue to meet, shareideas, and pursue robust fraud enforcement in2011. Each of the working group’s membersremains committed to continuing the strong part-nerships that the group has developed, and toaggressively investigating and prosecuting securi-ties and commodities fraud in the coming year.

Non-Discrimination WorkingGroup

INTRODUCTION

The Non-Discrimination Working Group ofthe Task Force is chaired by Thomas Perez,Assistant Attorney General for the Civil RightsDivision of the Justice Department; MichelleAronowitz, Deputy General Counsel for Enforce-ment and Fair Housing of the Department ofHousing and Urban Development (HUD);Sandy Braunstein, Director of the Division ofConsumer and Community Affairs of the FederalReserve Board; and the National Association ofAttorneys General, represented by AttorneyGeneral Lisa Madigan of Illinois.

The Non-Discrimination Working Groupfocuses on financial fraud and other unfair prac-tices directed at people or neighborhoods based onrace, color, religion, national origin, sex, age, dis-ability or any other basis prohibited by law. Thesepractices — which can include charging minori-ties higher prices for credit, providing less favor-able financial services to minority neighborhoodsand steering minorities to more expensive loanproducts — create an unlevel playing field andhave no place in our country. Through innovativefederal interagency cooperation and state-federalpartnerships, the Non-Discrimination WorkingGroup is rooting out these illegal discriminatorypractices. The Non-Discrimination WorkingGroup is monitoring new practices and trendsthat have emerged since the subprime crisis toaddress proactively any emerging discriminatorypractices.


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Working group members include federalagencies with responsibility for enforcing lawsthat prohibit discrimination in lending andstate law enforcement agencies.

Civil Rights Division, Department of Justice(DOJ)(co-chair): Through the Civil RightsDivision, the DOJ has responsibility for fed-eral court enforcement of the Fair HousingAct, 42 U.S.C. § 3601, the Equal CreditOpportunity Act (ECOA), 15 U.S.C. § 1691,and the Servicemembers Civil Relief Act, 50App. U.S.C. § 501. Other Justice Departmentcomponents who are members of the workinggroup are the Civil Division, the CriminalDivision, the FBI and the Executive Officefor U.S. Attorneys, representing the U.S.Attorneys.

HUD (co-chair): HUD’s Office of FairHousing and Equal Opportunity (FHEO) isresponsible for investigating Fair Housing Actcomplaints, issuing regulations under thestatute, and providing grants to organizations,as well as state and local governments, toengage in fair housing enforcement and educa-tional activities. HUD’s Office of GeneralCounsel represents HUD in administrativeenforcement actions under the Act. HUD,through the Federal Housing Administration’s(FHA) Mortgagee Review Board, overseesFHA-approved lenders’ compliance withFHA program requirements and federal law,including anti-discrimination law.

The Federal Reserve Board (co-chair): TheBoard ensures that the institutions it super-vises comply fully with the federal fair lendinglaws—ECOA and the Fair Housing Act.

The Office of the Illinois Attorney General(co-chair): The Office of the Illinois AttorneyGeneral is responsible for protecting the publicinterest and acting on behalf of the people ofIllinois victimized by discriminatory, fraudu-

lent, deceptive and unfair business practices.Law enforcement actions are taken by theAttorney General to enforce state civil rightsand consumer protection laws. The Office ofthe Illinois Attorney General represents thestate attorney general community on the work-ing group.

Other members of the working group includethe Federal Trade Commission (FTC), theTreasury Department, the Special InspectorGeneral for the Troubled Asset ReliefProgram, and federal bank regulatory agencies,including the Federal Deposit Insurance Corp-oration (FDIC), the National Credit UnionAdministration (NCUA) and the Office of theComptroller of the Currency (OCC).

FAIR LENDING: A FEDERAL

GOVERNMENT PRIORITY

In 2010, there was an increase in resourcesdevoted to fair lending enforcement across the fed-eral government. This led to stepped up enforce-ment and an increase in the number of investiga-tions that are expected to yield cases in the comingyear. In 2010, the bank regulatory agencies andHUD combined referred more matters involving apotential pattern or practice of discrimination tothe Department of Justice than in any year in atleast the last 20 years. The bank regulators andHUD referred 49 matters to the JusticeDepartment, 26 of which involved possible dis-crimination on the basis of race or national ori-gin. This is a marked increase over the previousyear’s total of 11 referrals involving possible dis-crimination based on race or national origin.

The most common claim in fair lendingenforcement actions brought during 2010involved pricing discrimination, which ischarging borrowers more because of their raceor national origin than similarly qualifiedwhite applicants. The pricing discrimination


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cases involved loans made in the subprime mar-ket prior to 2007, as well as lenders active in thecurrent mortgage market. Enforcement actionsbrought by the Office of the Illinois AttorneyGeneral involved allegations that lenderssteered borrowers to more expensive loansbecause of borrowers’ race or national origin. Inaddition, in 2010 HUD resolved a complaintinvolving allegations that a bank failed to serveminority neighborhoods.


The Non-Discrimination Working Groupheld three outreach events in 2010:

Chicago: On April 22, 2010, the workinggroup hosted the Non-Discrimination Work-ing Group’s Fair Lending Forum at the FederalReserve Bank of Chicago. The purpose of theForum was for the working group to hear fromIllinois housing organizations and communitygroups concerning fair lending issues. Panelistsincluded researchers, representatives of commu-nity-based organizations and housing coun-selors. After the Forum, members of the Non-Discrimination Working Group went on a tourof Chicago’s Back of the Yards Neighborhoodthat was organized with the assistance ofNeighborhood Housing Services of Chicago.The tour of the neighborhood included visitingvarious blocks that were devastated by subprimelending and mortgage fraud.

Washington, D.C.: On June 14, 2010, theworking group hosted the Non-Discrimin-ation working group’s roundtable discussionon non-discrimination in mortgage servicingand loan modifications at HUD. Roundtableparticipants included housing counselors,state regulators, homeowner’s advocates andcivil rights organizations.

Washington, D.C.: On July 30, 2010, theworking group hosted the Non-Discriminationworking group’s second roundtable discussionon non-discrimination in mortgage servicing andloan modifications at DOJ. Roundtable partici-pants included mortgage servicers, lenders andother industry representatives.

In addition to the working group events,working group members conducted a significantamount of outreach to the general public andindustry representatives. For example:

Working group members spoke at dozens ofconferences across the country to discuss fairlending enforcement priorities at the federaland state level.

HUD continued its national education and out-reach media campaign, which began in2009, to address three major areas: (1) Fore-closure Prevention, (2) Predatory Lending Pre-vention, and (3) Rental Discrimination. HUD,in cooperation with the Treasury Depart-ment, has linked this national education andoutreach campaign to Treasury’s Making-homeaffordable.gov website. The campaignhas received more than $10 million in donatedmedia and resulted in more than 600 millionaudience “impressions” through 2009 and 2010.

In July 2010, HUD hosted a National FairHousing Policy Conference in New Orleans.On July 22, 2010, the conference devoted a fullmorning to fair lending. Breakout sessionsincluded: (1) How to Investigate a Fair LendingCase; (2) Home Mortgage Disclosure Act(HMDA) and FHA Loan Data; and (3) LoanModification Programs Discrimination. Morethan 1,000 people, including state and local fairhousing agencies and private fair housinggroups, attended the policy conference.


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The FTC distributed more than 22,000copies of its consumer education publication,“Mortgage Discrimination: A Guide to Under-standing Your Rights & Taking Action,” pub-lished in both English and Spanish, during2010.

On November 16, 2010, the FDIC hosted aFair Lending Teleconference open to thebanking industry which discussed how theFDIC reviews institutions flagged for dis-parities based on analysis of HMDA dataand identifies areas of fair lending risk with-in their institutions’ programs and processes.More than 3,000 representatives from thebanking industry registered for this event.Questions received from this event wereposted with answers on the FDIC’s website.Similarly, bankers’ calls also took place atregional offices where bankers in that regionwere invited to call in.

On November 17, 2010, the Federal ReserveSystem held a webinar that provided informa-tion to the banking industry on how to cor-rectly report HMDA and CommunityReinvestment Act (CRA) data. HMDA andCRA data are critical to fair lending enforce-ment efforts because they can be used toidentify illegal practices including pricingdiscrimination and redlining. The webinaralso provided information on how banks canuse HMDA and CRA data to monitor theirown compliance with fair lending laws. Morethan 3,000 representatives of the bankingindustry participated in the webinar.

The membership of the working group hasbeen proactive in finding ways to target dis-criminatory conduct in key market segments:

Fair Lending and Loan Modification Initiative:The Non-Discrimination Working Groupis particularly concerned that homeowners

receive fair treatment from lenders and oth-ers offering to assist borrowers at risk of fore-closure. The working group is focused onensuring that loan modification programsare administrated in a fair and non-discrim-inatory manner. HUD used its authorityunder the Fair Housing Act to require that allloan servicers participating in the federal gov-ernment’s Home Affordable ModificationProgram (HAMP) collect and report data onthe race, ethnicity and sex of HAMP borrow-ers. Under the leadership of the FederalReserve, a subcommittee of the workinggroup is collaborating on analysis of theHAMP race and ethnicity data.

FHA Loan Initiative: The working grouphas placed a special emphasis on ensuring thatFHA-insured loans are available to all quali-fied borrowers on a non-discriminatory basis.In the wake of the collapse of the mortgagemarket, the number of FHA-insured loanshas increased dramatically. HUD, togetherwith DOJ and the Federal Reserve, has devel-oped fair lending screens to examine FHA loandata and identify disparities that may warrantinvestigation. Using the results from thisscreening, HUD and DOJ have initiated sev-eral investigations. In addition, DOJ reached asettlement with Prime-Lending, based on areferral by the Federal Reserve, which resolvedallegations of pricing discrimination, includingdiscrimination in the pricing of FHA-insuredmortgages.

Fair Lending Initiative: Through the PatriciaRoberts Harris National Fair Housing Train-ing Academy, HUD has conducted a FairLending Initiative to combat the effects of themortgage lending crisis. The courses, entitled“Buyer Beware,” “Preventing Foreclosure,”“Financial Aspects of Lending” and “Preda-tory Lending,” are geared toward housingproviders, housing counselors and home-


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owners. The courses emphasize teaching con-sumers how to identify and avoid deceptivemortgage lending practices.

Rulemaking on Equal Access to Housing inHUD Programs — Regardless of SexualOrientation or Gender Identity: HUD pub-lished a proposed rule in the Federal Registeron January 24, 2011. Among the protectionsfor lesbian, gay, bisexual and transgender per-sons set out in the proposed rule are provisionsintended to ensure that sexual orientation andgender identity are not grounds for decision-making in FHA programs. The proposed rulespecifies that determinations of adequacy ofmortgagor income shall be made in a uniformmanner without regard to actual or perceivedsexual orientation or gender identity of themortgagor.


The FDIC, Federal Reserve, OCC, DOJ andHUD held internal trainings for their attor-neys, investigators and examiners on fair lend-ing. Several of these trainings included materialpresented by other working group members.


ACTIONS

Department of Housing and UrbanDevelopment

EHOC v. First National Bank of St. Louis. InDecember 2010, HUD FHEO, the Metro-politan St. Louis Equal Housing Opportu-nity Council (EHOC), and First NationalBank of St. Louis and Central Bancompanyreached an agreement that will increase thebank’s commitment to minority and low-income communities. As part of the agree-ment, the bank will invest more than $2.5million over four years in St. Louis City,

Missouri; North St. Louis County, Missouri;and St. Clair County, Illinois. The agreementresulted from FHEO investigating and con-ciliating a fair housing complaint that wasfiled by EHOC, a fair housing organization,which alleged that the bank failed to locatebranches and provide banking services inAfrican-American neighborhoods.

HUD obtained a settlement with an FHA-approved lender of allegations that it had failedto file mortgage data as required under theHMDA. Under the settlement, DAS Acqui-sition Company LLC, agreed to pay a $100,000civil money penalty and accept a Letter ofReprimand from the Mortgagee Review Board.

HUD and its fair housing assistance partners,including state and local agencies certified byHUD to enforce the Fair Housing Act, concil-iated 102 lending discrimination cases in 2010and helped recover more than $1.24 million incompensation.

Department of Justice

On March 4, 2010, the United States filed afair lending complaint and consent orderresolving United States v. AIG Federal SavingsBank and Wilmington Finance Inc. AIGFederal Savings Bank (FSB) and Wilming-ton Finance Inc. (WFI), two subsidiaries ofAmerican International Group Inc., haveagreed to pay a minimum of $6.1 million toresolve allegations that they engaged in a pat-tern or practice of discrimination againstAfrican American borrowers. This case resultedfrom a referral by the Treasury Department’sOffice of Thrift Supervision to the JusticeDepartment’s Civil Rights Division. The com-plaint alleges that the two defendants violated theFair Housing Act and ECOA when theycharged higher fees on thousands of subprimewholesale loans to African American borrowersnationwide from July 2003 until May 2006, a


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period of time before the federal governmentobtained an ownership interest in AmericanInternational Group Inc. Under the settle-ment, AIG FSB and WFI will pay up to $6.1million to African American customers whowere charged higher broker fees than non-Hispanic white customers and will invest at least$1 million in consumer financial education.

On December 9, 2010, the United States fileda fair lending complaint and proposed consentorder resolving United States v. PrimeLending.This case resulted from a referral by theFederal Reserve Board to the JusticeDepartment’s Civil Rights Division in 2009.The complaint alleged that the defendantengaged in a pattern or practice of discrimi-nation against African American borrowersnationwide between 2006 and 2009. Thedefendant, a national mortgage lender with168 offices in 32 states became, in 2009, oneof the nation’s 20 largest FHA lenders.PrimeLending did not have monitoring inplace to ensure that it complied with the fairlending laws, even as it grew to originatemore than $5.5 billion in loans per year. Theconsent order requires the defendants to pay$2 million to the victims of discriminationand put in place loan pricing policies, moni-toring and employee training that ensurediscrimination does not occur in the future.The complaint alleges that the defendant vio-lated the Fair Housing Act and the EqualCredit Opportunity Act when it chargedAfrican-American borrowers higher annualpercentage rates of interest between 2006 and2009 for prime fixed-rate home loans and forhome loans guaranteed by the FHA and De-partment of Veterans Affairs than it charged tosimilarly-situated white borrowers. Prime-Lending’s policy of giving its employees widediscretion to increase their commissions byadding overages to loans, which increased theinterest rates paid by borrowers, had a disparateimpact on African-American borrowers.


In September 2010, the FTC reached a majorsettlement in its disparate impact litigationagainst Golden Empire Mortgage and itsowner. The FTC alleged that the defendantsviolated the ECOA by charging Hispanicconsumers higher prices for mortgage loansthan non-Hispanic white consumers, dis-parities that could not be explained by theapplicant’s credit or risk characteristics. Theprice disparities resulted from the defen-dants’ discretionary pricing policy thatallowed loan officers and branch managerswide discretion to charge some borrowers“overages,” i.e., higher interest rates and up-front charges than the risk-based price ofthe loan. The order imposed a $5.5 millionjudgment, all but $1.5 million of which issuspended based on the defendants’ finan-cial situation. The money is being used to pro-vide redress to about 3,200 consumers whowere harmed by the defendants’ pricing policy.Additionally, the settlement imposed obliga-tions on the defendants to limit discretionarypricing, implement a fair lending monitoringprogram, conduct employee fair lendingtraining, ensure data integrity and conductregular compliance reporting.

In January 2010, the FTC entered into a mod-ified settlement with Gateway Funding Diver-sified Mortgage Services L.P. and its generalpartner, Gateway Funding Inc. The FTCalleged that Gateway failed to create its owneffective fair-lending monitoring program,despite its agreement to do so in a December2008 settlement of FTC charges of ECOAviolations. The modified order requires Gate-way to hire a third-party consultant to assist itin developing this fair lending compliance andmonitoring program. The agreement also lim-its Gateway’s discretion over pricing until theconsultant certifies that an adequate monitor-ing program is in place. Previously, in


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December 2008, the FTC reached a settle-ment with Gateway to resolve allegationsthat Gateway violated ECOA by chargingAfrican-American and Hispanic consumershigher prices for mortgage loans than non-Hispanic white consumers. The settlementimposed a judgment of $2.9 million, all but$200,000 of which was suspended based oninability to pay. The FTC used this money toredress about 2,000 African-American andHispanic consumers who were harmed byGateway’s practices.

Office of the Illinois Attorney General

On June 29, 2010, the Office of the IllinoisAttorney General Lisa Madigan filed suitagainst Countrywide Home Loans Inc.,Countrywide Financial Corporation and FullSpectrum Lending Inc. for steering prime-eli-gible African American and Latino borrowersinto subprime mortgages and for chargingAfrican American and Latino borrowers morefor certain mortgage products from 2005through 2007 in Illinois. The Illinois AttorneyGeneral’s complaint alleges that Countrywide’sdiscretionary product selection and pricingpolicy allowed employees and brokers to alterterms, conditions or privileges of real estatetransactions resulting in the steering of prime-eligible African American and Latino borrow-ers into subprime mortgages and in givingAfrican American and Latino borrowers mort-gages that are costlier than mortgages given tosimilarly-situated white borrowers in violationof the Illinois Human Rights Act. The IllinoisAttorney General’s complaint also alleges thatCountrywide’s discretionary product selectionand pricing policy had an adverse and disparateimpact on African American and Latino bor-rowers in Illinois, as compared to similarly-sit-uated white borrowers in violation of theIllinois Human Rights Act. The complaintalso alleges that Countrywide utilized lendingstandards that have no economic basis and are

discriminatory in effect, in violation of theIllinois Fairness in Lending Act. The IllinoisAttorney General is seeking restitution for allof the victims and civil penalties of $25,000 perviolation of the Illinois Human Rights Act.

In addition, the Illinois Attorney General’s lit-igation against Wells Fargo and Company,Wells Fargo Bank N.A., also doing business asWells Fargo Home Mortgage, and WellsFargo Financial Illinois Inc., which was filedon July 31, 2009, is ongoing. The IllinoisAttorney General’s complaint alleges thatWells Fargo steered prime-eligible AfricanAmerican and Latino borrowers into subprimemortgages.

Federal Deposit Insurance Corporation

In 2010, the FDIC issued civil money penal-ties in three fair lending cases. Each of thesecases had been referred to the Department ofJustice but returned to the FDIC for admin-istrative enforcement action.

EvaBank — The FDIC cited the bank forviolating ECOA and the Fair Housing Actafter finding that the bank engaged in apattern or practice of discrimination in2005 when, for certain residential mortgageloans, the bank charged higher interestrates to Hispanic borrowers than it chargedto other similarly situated non-Hispanicwhite borrowers. The bank was assessed a$15,000 civil money penalty.

Merchants and Planters Bank — TheFDIC cited the bank for violatingECOA after finding that the bankimpermissibly used age in the pricing ofcertain loans. The bank was assessed a$5,000 civil money penalty.

Jefferson Bank — The FDIC cited thebank for violating ECOA and the Fair


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Housing Act after finding that the bankengaged in a pattern or practice of dis-crimination in 2005 and 2006 when thebank limited the choice of loan programsit offered to certain Hispanic borrowerswho also qualified for other loan programsthe bank offered to non-Hispanic whiteborrowers. The bank was assessed a$10,000 civil money penalty.

The FDIC also issued civil money penaltiesin 67 cases involving inaccurate HMDA data.Civil money penalties totaled approximately$400,000.

A LOOK AHEAD

The referrals from the bank regulatoryagencies and active investigations by workinggroup members indicate that in 2011 there willbe continued attention to pricing discrimina-tion and product steering, as well as a growthin the number of matters involving redlining.In addition, the working group expects to con-tinue to pursue its two special areas of focusfrom 2010: ensuring non-discrimination in loanmodifications and ensuring compliance with thefair lending laws by lenders that participate in theFHA’s mortgage insurance program.

VICTIMS’ RIGHTS COMMITTEE

INTRODUCTION

The third committee created to carry out thePresident’s Executive Order establishing theTask Force is the Victims’ Rights Committee(Committee). The Committee’s primary purposeis to address the needs and rights of victims offinancial fraud. Accordingly, the Committee hasconcentrated its efforts in three areas: (1) publicawareness and education through the launch of

a public website; (2) training on victims’ rightsand services; and (3) focusing on restitution as apriority in federal prosecutions.

The Committee is co-chaired by the Depart-ment of Justice (DOJ), Executive Office for U.S.Attorneys (EOUSA), represented by Director H.Marshall Jarrett, and the DOJ’s Office of JusticePrograms (OJP), represented by Principal DeputyAssistant Attorney General Mary Lou Leary.Membership in the Committee consists of manyfederal agencies and components, including: theAttorney General’s Advisory Committee; DOJ’sCriminal, Civil and Civil Rights Divisions; theFBI; the Federal Trade Commission (FTC);the U.S. Department of Housing and UrbanDevelopment (HUD); the Securities and Ex-change Commission (SEC); and the U.S.Marshal’s Service (USMS).

The Committee held its inaugural meetingon January 20, 2010, where the Committee co-chairs presented remarks and charged theCommittee with finding ways to better meet thelegal requirements and needs of victims of finan-cial fraud. To increase the Committee’s under-standing of and focus on victims in such cases,the Committee asked the National CriminalJustice Reference Service to compile a compre-hensive list of publications, resources and articleabstracts on victimization and other issues affect-ing victims of financial fraud crimes.This compi-lation was distributed to all Committee membersas well as to the Executive Director of the TaskForce. Further, given that the Committee is madeup of members from an incredibly diverse rangeof governmental entities, the Committee’s initialmeeting provided members with the opportunityto hear presentations from each other regardingtheir respective agency’s programs, activities andtraining concerning crime victims.This exchangeof information served to increase the members’understanding of the Committee’s purpose as


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well as how each member can most effectivelyprovide victim assistance and outreach within theirparticular area of responsibility.

In addition to meetings and the exchange ofideas, the Committee spent a significant portionof its energy during 2010 developing websitecontent and training materials and consideringlegislative tools aimed at addressing the needsand rights of financial fraud victims. TheCommittee took the lead in establishing theTask Force’s public website, www.stopfraud.gov,which was launched at DOJ’s ceremony commem-orating National Crime Victims’ Rights Week.Thewebsite is an invaluable resource for members ofthe public. Specifically, the section entitled“Protect Yourself From Fraud” contains descrip-tions of a wide variety of financial scams andinformation on how best to avoid becoming avictim of financial fraud. The website is also auseful resource for all Task Force members as itcontains up-to-date information on the enforce-ment activities of each working group.

Beyond establishing the website, the Com-mittee has also assisted in the development of abulletin for federal prosecutors, conducted numer-ous training sessions at national training eventsand is currently working to develop an exportabletraining module that can be used by investigators,prosecutors and victim service providers toimprove their awareness of and response to finan-cial fraud victims. More information about theimportant work of the Committee during the pastyear and goals for moving forward in 2011 areaddressed below.


As discussed above, the Task Force’s publicWebsite, www.stopfraud.gov, was launched by theAttorney General as part of National Crime

Victims’ Rights Week on April 16, 2010. Thewebsite was designed to be a one-stop resource forfinancial fraud victims and the public at large. TheCommittee spent considerable time compilingeffective consumer resources for the first phase ofthe website, which were developed to provideinformation about how to protect individuals fromfinancial fraud and how to report various types offinancial fraud. This portion of the website isorganized by type of fraud scheme, with links toappropriate existing consumer websites withineach category. Additionally, the website includeslinks to resources from nearly all Committeemember agencies, as well as other useful tools forthe public. Particularly active in contributing con-tent for the website is the FTC, which continuesto provide numerous resources concerning mort-gage foreclosure scams, internet scams, govern-ment grant scams, business opportunity scams,identity theft and charity fraud. StopFraud.gov alsolinks to the FTC Complaint Assistant, whichallows consumers to file complaints online aboutfrauds and scams. These complaints are enteredinto FTC’s Consumer Sentinel, a secure onlinedatabase that is used by thousands of civil andcriminal law enforcement authorities worldwide.

Since its launch in April 2010, the Stop-Fraud.gov website has received more than 1.5million page views, with the sections concerningMortgage Fraud, Loan and Lending Fraud,Identity Theft/Privacy Issues and Mass Market-ing Fraud, Mail, Wire and Internet Fraud beingvisited most often. The Committee continues toadd and update content to the website and hasbegun gathering proposed content for a new sec-tion of the site that will provide additional usefulresources to consumers who have been victimizedby financial fraud.The new material is expected tolaunch in connection with the observance ofNational Crime Victims’ Rights Week.


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Members of the Committee have served asfaculty at numerous training courses to educateparticipants about victims’ rights, policy considera-tions and restitution in financial fraud cases. OnFebruary 25, 2010, Committee members fromEOUSA and the U.S. Attorneys’ Offices pre-sented a session to Assistant U.S. Attorneys at theAsset Forfeiture Chiefs and Experts Conference atthe National Advocacy Center (NAC) inColumbia,South Carolina.The session focused onusing the asset forfeiture procedure to returnmoney to victims and to satisfy restitution orders.

This presentation was repeated on May 25, 2010,at the Asset Forfeiture Support Staff Expertscourse. Additionally, on March 3, 2010, anEOUSA staff member taught a segment about thegovernment’s responsibility to victims at theMortgage Fraud Task Force Conference, at theNAC, whose audience included federal, state andlocal prosecutors and investigators. Committeemembers also presented sessions on victims’ rightsand restitution at the U.S. Attorneys’ FinancialFraud Coordinators Conference and at theIdentity Theft Seminar, both held at the NAC inOctober 2010.


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The 2010 National Center for Victims ofCrime’s National Conference was held in NewOrleans on September 14–17, 2010. This impor-tant national conference, which included approxi-mately 1,000 participants, provided the opportu-nity for several Committee members to hostworkshops and institutes and to make presenta-tions to train victim advocates, prosecutors, policy-makers, mental health providers and professionalsabout the unique needs of victims of financialfraud. The Office for Victims of Crime (OVC)served as the official conference partner for thisnational training event and hosted two separateworkshops addressing financial fraud. The firstwas titled “Overview of Cyber and FinancialFraud,” which addressed how financial fraud andcybercrime victims can face unique hurdles whentrying to access justice, and explored the uniquerights of this category of crime victims. The sec-ond was titled “Expanding Your Services To Assistand Protect Victims of Identity Theft,” whichshowcased new tools developed by OVC and theFTC for use by victim service providers to expandtheir reach to victims of financial crime. At thisNational Conference, the Criminal Division’sAsset Forfeiture and Money Laundering Section(AFMLS) staffed an exhibit booth, distributed lit-erature and answered questions from the public,while EOUSA and the U.S. Attorney communitypresented at workshops relating to victims’ rightsand restitution in financial fraud cases.

Lastly , AFMLS conducted a two-day sem-inar entitled “Returning Forfeited Assets toVictims of Crime,” which provided training andinterface opportunities for prosecutors, agents,victim/witness professionals and other govern-ment professionals responsible for returningforfeited assets to victims. Approximately 130government professionals attended this seminar.

In September 2010, EOUSA published anissue of USA Bulletin, an educational publicationdirected at the U.S. Attorney community, whichconcentrated on the formation and initial work ofthe Task Force. The issue included an article

written by the Committee’s co-chairs which dis-cussed the Crime Victims’ Rights Act (18 U.S.C.3771 et seq.), explained the Federal Government’sobligations to crime victims in the criminal jus-tice process and highlighted the Committee’sactivities and goals for 2010.

In late 2010, AFMLS published ReturningForfeited Assets to Victims of Crime: A Guide forProsecutors, Agents, and Support Staff. This com-prehensive guide provides an overview of forfei-ture as it relates to victims and step-by-stepinstructions for using the remission and restora-tion processes to return forfeited funds to vic-tims. Further, AFMLS introduced a sectiondevoted solely to victim issues on its internalwebsite, AFML Online. This section providesgovernment professionals and investigators withrelevant information pertaining to the remissionand restoration of forfeited assets to victims. Theinformation includes AFMLS publications, suchas the new Returning Forfeited Assets to Victims ofCrime guide, regulations and policies, samplerequests, forms and case summaries.

Collaboration With Other Task ForceMembers

In an effort to further expand its role intraining, the Victims’ Rights Committee briefedand provided a training module sample to theTraining and Information Sharing Committeeregarding the use and value of exportable train-ing modules for law enforcement and prosecu-tor-based trainings on financial fraud victims’issues. The training components included infor-mation on victim impact, victims’ rights, victimrestitution, asset recovery, and forfeiture andvictim resources. As a result of the briefing, a rep-resentative from the Federal Law EnforcementTraining Center (FLETC) Financial FraudInstitute expressed interest in having the Com-mittee work to develop generic victim trainingmodules that could be added to their Introductionto Fraud Investigation Training Program.


4.57

In mid-2010, the Deputy Attorney Generalconvened a Victims of Crime Working Groupand tasked it with revising the Attorney GeneralGuidelines for Victim and Witness Assistance(Guidelines), which were last updated in 2005.The Committee worked with the Victims ofCrime Working Group to draft language forthe financial fraud and identity theft sectionsof the new Guidelines, which are expected tobe implemented by mid 2011.

Legislative Efforts

Mindful that the President’s ExecutiveOrder explains that one of the purposes of theTask Force is to “recover the proceeds of suchcrimes and violations, and ensure just andeffective punishment,” the Committee devotedsignificant time to examining impediments tothe collection of full and timely restitution forvictims of crime. The Committee continues toexplore the role of potential legislative solu-tions to improve the efficiency and effective-ness of services and restitution for victims.The Committee will continue to work with theDepartment of Justice’s Office of LegislativeAffairs to identify any potential legislativesolutions.

SIGNIFICANT ACCOMPLISHMENTS

The following is a summary of some of thesignificant actions and accomplishments of themembers of the Victims’ Rights Committee:

Office of Justice Programs/Office forVictims of Crime

The OJP within DOJ has a unique role toplay in helping to prevent financial fraud, includ-ing identity theft, and in assisting victims. Inaddition, OJP strives to ensure that local lawenforcement and victims’ advocates receive train-

ing regarding proper responses to the large num-ber of individuals who fall prey to financial fraud.OVC announced a Financial and Non-ViolentCrimes Fellowship to assess the needs and rightsof vulnerable victims of financial fraud and otherforms of serious yet nonviolent crime (identitytheft, medical/pharmaceutical fraud, mortgagefraud, computer intrusions, international cybercrimes, etc.). The Fellowship offers OVC amore comprehensive victim assistance strategythat addresses gaps in traditional victim servicesand develops model practice recommendationsfor this large, yet underserved, victim population.OVC also launched a new electronic publication,Expanding Services To Reach Victims of IdentityTheft and Financial Fraud, which summarizes theefforts of four grantees to expand their services toassist victims at the local, state, regional andnational levels.This electronic publication includespractical tools to set up program infrastructure andtraining for staff, pro bono attorneys, law enforce-ment and other professionals; to equip victimswith the necessary information to help them-selves; and to stage an effective public outreach—all without a major outlay of financial or humanresources.

U.S. Attorneys’ Offices and Asset Forfeitureand Money Laundering Section —Recovery and Return of Funds to Victims

During the first year of the Task Force, theU.S. Attorneys’ Offices (USAOs) collectedmore than $690,000,000 in criminal restitutionand fines in financial fraud cases. While resti-tution goes directly to the victims, criminalfines are deposited into the Crime VictimsFund which is used to provide monies for vic-tim compensation programs, victim-relatedtraining and victim assistance programs aroundthe country. In Fiscal Year 2010, AFMLSauthorized the return of more than $215 mil-lion in forfeited proceeds to victims of financial


4.58

fraud in cases prosecuted by the USAOs andAFMLS. Further, in the first half of Fiscal Year2011, more than $160 million was authorizedfor return to victims. Recent significant recover-ies include:

United States v. $40,269,890.20, et al.(“World Ocean Farm”)

Isamu Kuroiwa, a citizen of Japan, claimedto operate highly profitable shrimp farms in thePhilippines that generated 100 percent annualreturn on investment. In reality, the farms werea small fraction of the size advertised, neverturned a profit and never exported any shrimp.More than 10,000 investors suffered cumulativelosses of at least $230 million. Kuroiwa pleadedguilty to fraud charges. The FBI seized fundsthat Kuroiwa attempted to launder in theUnited States, and AFMLS brought an in remforfeiture action against the funds. On March12, 2010, the court entered a default order offorfeiture of $40 million. On January 28, 2011,AFMLS authorized remission of the forfeitedfunds to the Japanese bankruptcy administratorfor distribution to the victims.

United States v. Hassan Nemazee

Between 1997 and 2009, Hassan Nemazeeused false documentation to obtain multiplelines of credit worth hundreds of millions ofdollars from various banks. Nemazee was pros-ecuted by the U.S. Attorney’s Office for theSouthern District of New York and was con-victed of wire and bank fraud and ordered to paymore than $292 million in restitution to threevictim financial institutions. Various assets val-ued at approximately $78 million were forfeitedas proceeds of the scheme. On November 19,2010, AFMLS approved restoration of the for-feited proceeds to the three victims.

United States v. Marc Dreier

Marc Dreier sold fraudulent promissory notesto multiple hedge funds, investment funds andpension funds. The U.S. Attorney’s Office forthe Southern District of New York successfullyprosecuted Dreier, and on July 15, 2009, Dreierwas convicted of conspiracy, wire fraud, moneylaundering and securities fraud and ordered to paymore than $389 million in restitution to 26 vic-tims. On August 31, 2010, the court ordered theforfeiture of various assets valued at approximately$80 million, which will be returned to victimsthrough the restoration process.

United States v. Richard Alyn Waage (“Tri-West Investment Club”)

On October 14, 2010, AFMLS released remis-sion payments totaling $8 million to 4,965 victimsof the Tri-West Investment Club Ponzi scheme.Canadian Alyn Richard Waage and co-conspira-tors induced thousands of victims to invest byfalsely representing, through the Internet andother media, that the investments would earn 10percent or more per month through a special bankdebenture trading program. Inevitably, the schemecollapsed and investors lost more than $30 million.The Internal Revenue Service and the FBI seizedforeign bank accounts and real properties inMexico and Costa Rica, a yacht, a helicopter,numerous late-model vehicles and jewelry. TheU.S. Attorney’s Office for the Eastern District ofCalifornia successfully prosecuted Waage and hisco-conspirators on various fraud charges andobtained forfeiture of the assets. In September2010, AFMLS authorized disbursement of theforfeited funds to the victims.


4.59

�

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The FTC pairs every law enforcement actionwith relevant consumer education. Web pages,videos, flyers, audio messages and other resourcesfor consumers, businesses and media are postedto maximize education about cases. For example,a video, Don’t Pay for a Promise, offers informationfor job hunters about recognizing and avoidingjob placement scams. Another, Dealing with DebtCollectors, explains the rights of people in debt,the responsibilities of legitimate debt collectorsand several illegal debt collection schemes. 10Things You Can Do to Avoid Fraud, a brochure, isa practical tip sheet to avoiding common fraudsand scams.

A LOOK AHEAD

Looking ahead, the Committee will contin-ue to pursue goals relating to training. First, theCommittee will work with FLETC to developmodules for its Introduction to Fraud Trainingprogram. The Committee also intends to con-tinue developing strategies to increase the coop-eration among asset forfeiture units, financiallitigation units, and criminal prosecutors at theU.S. Attorneys’ Offices. This will be accom-plished through collaborative training of bothprosecutors and law enforcement agents. Asalways, the Committee will seek to identify andaddress any emerging areas where the needs andrights of victims of financial fraud requireincreased attention.


4.60

5.1

Chapter

Appendix A.Executive Order


5.3

Appendix A

THE WHITE HOUSE

Office of the Press Secretary

For Immediate Release November 17, 2009

EXECUTIVE ORDER

ESTABLISHMENT OF THE FINANCIAL FRAUD ENFORCEMENT TASK FORCE

By the authority vested in me as President by theConstitution and the laws of the United States of America, andin order to strengthen the efforts of the Department of Justice,in conjunction with Federal, State, tribal, territorial, andlocal agencies, to investigate and prosecute significantfinancial crimes and other violations relating to the currentfinancial crisis and economic recovery efforts, recover theproceeds of such crimes and violations, and ensure just andeffective punishment of those who perpetrate financial crimesand violations, it is hereby ordered as follows:

Section 1. Establishment. There is hereby established aninteragency Financial Fraud Enforcement Task Force (Task Force)led by the Department of Justice.

Sec. 2. Membership and Operation. The Task Force shall be chaired by the Attorney General and consist of senior-levelofficials from the following departments, agencies, and offices,selected by the heads of the respective departments, agencies,and offices in consultation with the Attorney General:

(a) the Department of Justice;

(b) the Department of the Treasury;

(c) the Department of Commerce;

(d) the Department of Labor;

(e) the Department of Housing and Urban Development;

(f) the Department of Education;

(g) the Department of Homeland Security;

(h) the Securities and Exchange Commission;

(i) the Commodity Futures Trading Commission;

(j) the Federal Trade Commission;

(k) the Federal Deposit Insurance Corporation;

(l) the Board of Governors of the Federal Reserve System;

(m) the Federal Housing Finance Agency;

more (OVER)

Appendix A — Executive Order

5.4

2

(n) the Office of Thrift Supervision;

(o) the Office of the Comptroller of the Currency;

(p) the Small Business Administration;

(q) the Federal Bureau of Investigation;

(r) the Social Security Administration;

(s) the Internal Revenue Service, Criminal Investigations;

(t) the Financial Crimes Enforcement Network;

(u) the United States Postal Inspection Service;

(v) the United States Secret Service;

(w) the United States Immigration and Customs Enforcement;

(x) relevant Offices of Inspectors General and relatedFederal entities, including without limitation theOffice of the Inspector General for the Departmentof Housing and Urban Development,the RecoveryAccountability and Transparency Board, and the Officeof the Special Inspector General for the TroubledAsset Relief Program; and

(y) such other executive branch departments, agencies,or offices as the President may, from time to time,designate or that the Attorney General may invite.

The Attorney General shall convene and, through theDeputy Attorney General, direct the work of the Task Force infulfilling all its functions under this order. The AttorneyGeneral shall convene the first meeting of the Task Force within30 days of the date of this order and shall thereafter convenethe Task Force at such times as he deems appropriate. At the direction of the Attorney General, the Task Force may establishsubgroups consisting exclusively of Task Force members or theirdesignees under this section, including but not limited to aSteering Committee chaired by the Deputy Attorney General, andsubcommittees addressing enforcement efforts, training andinformation sharing, and victims' rights, as the AttorneyGeneral deems appropriate.

Sec. 3. Mission and Functions. Consistent with the authorities assigned to the Attorney General by law, and otherapplicable law, the Task Force shall:

(a) provide advice to the Attorney General for theinvestigation and prosecution of cases of bank,mortgage, loan, and lending fraud; securities andcommodities fraud; retirement plan fraud; mail andwire fraud; tax crimes; money laundering; False ClaimsAct violations; unfair competition; discrimination;and other financial crimes and violations (hereinafterfinancial crimes and violations), when such cases aredetermined by the Attorney General, for purposes ofthis order, to be significant;

more


5.5

3(b) make recommendations to the Attorney General, from

time to time, for action to enhance cooperation amongFederal, State, local, tribal, and territorialauthorities responsible for the investigation andprosecution of significant financial crimes andviolations; and

(c) coordinate law enforcement operations withrepresentatives of State, local, tribal, andterritorial law enforcement.

Sec. 4. Coordination with State, Local, Tribal, andTerritorial Law Enforcement. Consistent with the objectivesset out in this order, and to the extent permitted by law,the Attorney General is encouraged to invite the followingrepresentatives of State, local, tribal, and territorial lawenforcement to participate in the Task Force's subcommitteeaddressing enforcement efforts in the subcommittee's performanceof the functions set forth in section 3(c) of this orderrelating to the coordination of Federal, State, local, tribal,and territorial law enforcement operations involving financialcrimes and violations:

(a) the National Association of Attorneys General;

(b) the National District Attorneys Association; and

(c) such other representatives of State, local, tribal,and territorial law enforcement as the AttorneyGeneral deems appropriate.

Sec. 5. Outreach. Consistent with the law enforcement objectives set out in this order, the Task Force, in accordancewith applicable law, in addition to regular meetings, shallconduct outreach with representatives of financial institutions,corporate entities, nonprofit organizations, State, local,tribal, and territorial governments and agencies, and otherinterested persons to foster greater coordination andparticipation in the detection and prosecution of financialfraud and financial crimes, and in the enforcement of antitrustand antidiscrimination laws.

Sec. 6. Administration. The Department of Justice, tothe extent permitted by law and subject to the availability ofappropriations, shall provide administrative support and fundingfor the Task Force.

Sec. 7. General Provisions. (a) Nothing in this ordershall be construed to impair or otherwise affect:

(i) authority granted by law to an executivedepartment, agency, or the head thereof, or thestatus of that department or agency within theFederal Government; or

(ii) functions of the Director of the Office of Management and Budget relating to budgetary,administrative, or legislative proposals.

more(OVER)

Appendix A — Executive Order

5.6

4(b) This Task Force shall replace, and continue the

work of, the Corporate Fraud Task Force created byExecutive Order 13271 of July 9, 2002. Executive Order 13271 is hereby terminated pursuant to section 6of that order.

(c) This order shall be implemented consistent withapplicable law and subject to the availability ofappropriations.

(d) This order is not intended to, and does not, createany right or benefit, substantive or procedural,enforceable at law or in equity by any party againstthe United States, its departments, agencies, orentities, its officers, employees, or agents, or anyother person.

Sec. 8. Termination. The Task Force shall terminate when directed by the President or, with the approval of thePresident, by the Attorney General.

BARACK OBAMA

THE WHITE HOUSE,November 17, 2009.

###

6.1

Chapter

Appendix B.Financial Fraud Coordinators’

Directory

6.3


Appendix B

FINANCIAL FRAUD COORDINATORS' DIRECTORY

District/Division Name/Address

Office of Deputy Attorney General.......................Adkins, Robb, Executive DirectorFinancial Fraud Enforcement Task ForceDepartment of Justice950 Pennsylvania Ave., NWWashington, DC 20530

Executive Office for U.S. Attorneys......................Varnado, Jason, AUSASmith, Judy, AUSA600 E Street, NWBICN. Bldg., Room 7600Washington, DC 20530

Criminal Division, DOJ.........................................Lurie, Adam, Senior Counsel to the AAGSuleiman, Daniel, Counsel to the AAGDepartment of Justice950 Pennsylvania Ave., NWWashington, DC 20530

Civil Division, DOJ...............................................Graber, Geoffrey, Office of the AAGDepartment of Justice950 Pennsylvania Ave., NWWashington, DC 20530

Civil Rights Division, DOJ................................... Halperin, Eric, Special Counsel to the AAGDepartment of Justice950 Pennsylvania Ave., NWWashington, DC 20530

Antiturst Division, DOJ........................................ Terzaken, John, Assistant ChiefDepartment of Justice950 Pennsylvania Ave., NWWashington, DC 20530

Middle District of Alabama...................................Schiff, Andrew, AUSAActing Chief, Criminal DivisionUnited States Attorney’s Office131 Clayton StreetMontgomery, Alabama 36101

6.4

Appendix B — Financial Fraud Coordinators’ Directory

Northern District of Alabama...............................Posey, Robert, AUSAUnited States Attorney’s Office1801 Fourth Avenue NorthBirmingham, Alabama 35203

Southern District of Alabama................................Bordenkircher, Greg AUSAUnited States Attorney’s OfficeRiverview Plaza, 63 S. Royal St.Suite 600Mobile, Alabama 36602

District of Alaska................................................... Feldis, Kevin, AUSAUnited States Attorney’s Office222 West Seventh Avenue, #9, Room 253Anchorage, Alaska 99513-7567

District of Arizona.................................................Lopez, John, AUSAUnited States Attorney’s OfficeTwo Renaissance Square40 North Central, Suite 1200Phoenix, Arizona 85004-4408

Eastern District of Arkansas..................................Vena, George, AUSAUnited States Attorney’s Office425 W. Capitol, 5th Floor, Ste 500Little Rock, Arkansas 72201

Western District of Arkansas................................ Plumlee, Christopher D., AUSAUnited States Attorney’s Office414 Parker AvenueFort Smith, Arkansas 72901

Central District of California................................Kim, Beong-Soo, AUSAUnited States Attorney’s Office312 N. Spring St., 17th FloorLos Angeles, California 90012

Eastern District of California................................Rimon, Laurel, AUSA Chief, Special Prosecutions UnitUnited States Attorney’s Office501 I Street, Room 10-100Sacramento, California 95814

6.5


Eastern District of California, cont. ......................Boone, Stanley, AUSAChief, White Collar Crime UnitUnited States Attorney’s Office2500 Tulare St., Room 4401Fresno, CA 93720

Northern District of California.............................Sprague, Doug, AUSAAdam Reeves, AUSAUnited States Attorney’s Office450 Golden Gate AvenueBox 36055San Francisco, California 94102

Southern District of California.............................Beste, Eric, AUSAUnited States Attorney’s Office880 Front Street, Room 6293San Diego, California 92101

District of Colorado...............................................Kirsch, Matthew, AUSAChief, Economic Crimes SectionUnited States Attorney’s OfficeSuite 1200, Federal Office Building1225 17th Street, Suite 700Denver, Colorado 80202

District of Columbia..............................................Connor, Deborah, AUSA Chief, Fraud and Public Corruption SectionUnited States Attorney’s OfficeJudiciary Center Building555 4th Street, NW, Room 5253Washington, D.C. 20530

District of Connecticut..........................................Glover, Eric, AUSAUnited States Attorney’s OfficeConnecticut Financial Center157 Church Street, 23rd FloorNew Haven, Connecticut 06510

District of Delaware...............................................Burke, Christopher, AUSAUnited States Attorney’s OfficeNemours BuildingP.O. Box 2046Wilmington, Delaware 19899

6.6


Middle District of Florida.....................................O'Neill, Robert, AUSAUnited States Attorney’s Office400 North Tampa Street, Suite 3200Tampa, Florida 33602

Northern District of Florida................................. Kunz, Stephen M., Supervisory AUSAUnited States Attorney’s Office111 North Adams Street, 4th FlTallahassee, Florida 32301

Southern District of Florida..................................Silverstein, Joan, AUSAUnited States Attorney's OfficeFederal Justice Building99 NE Fourth StreetMiami, Florida 33132

Middle District of Georgia....................................McCommon, Paul C., III, AUSAUnited States Attorney’s OfficeThomas Jefferson Building300 Mulberry Street, 4th FloorMacon, Georgia 31201

Northern District of Georgia................................ Chartash, Randy, AUSAUnited States Attorney’s OfficeRichard Russell Building, Suite 60075 Spring Street, SWAtlanta, Georgia 30303

Southern District of Georgia.................................Durham, James D., First Assistant USAUnited States Attorney’s Office100 Bull Street, Suite 201Savannah, Georgia 31412

District of Guam....................................................David, Marivic P., AUSAUnited States Attorney’s OfficeSirena Plaza108 Hernan Cortez, Suite 500Hagatna, Guam 96910

District of Hawaii...................................................Osborne, Jr., Leslie E., AUSAUnited States Attorney’s Office300 Ala Moana Blvd., Room 6-100Honolulu, Hawaii 96850

6.7


District of Idaho.....................................................Breitsameter, George W., AUSAUnited States Attorney’s Office800 Park Blvd., Suite 600Boise, ID 83712

Central District of Illinois.....................................Knauss, Darilynn, AUSA, Branch ChiefUnited States Attorney’s OfficeOne Technology Plaza211 Fulton Street, Ste 400Peoria, Illinois 61602

Northern District of Illinois..................................Conway, James M., AUSA Chief, Financial Crimes & Special Prosec.United States Attorney’s OfficeEverett McKinley Dirksen BuildingChicago, Illinois 60604

Southern District of Illinois..................................Smith, Norman R., AUSAUnited States Attorney’s OfficeNine Executive Drive, Suite 300Fairview Heights, Illinois 62208

Northern District of Indiana.................................Houston, Toi Denise, AUSAUnited States Attorney’s Office5400 Federal Plaza, Suite 1500Hammond, Indiana 46320

Southern District of Indiana................................. McKee, Christina, Criminal ChiefUnited States Attorney’s Office10 West Market Street, Suite 2100Indianapolis, Indiana 46204-3048

Northern District of Iowa......................................Berry, Sean, AUSAUnited States Attorney’s OfficeHach Building401 1st Street, SE, Suite 401Cedar Rapids, Iowa 52401-1825

Southern District of Iowa......................................Kahl, Andrew H., AUSAUnited States Attorney’s Office110 East Court Avenue, Room 286Des Moines, Iowa 50309

6.8


District of Kansas...................................................Hathaway, Rich, AUSAUnited States Attorney’s Office444 SE Quincy Street, Ste 290Topeka, Kansas 66683

Eastern District of Kentucky.................................Catron, Frances, AUSAUnited States Attorney’s Office260 W. Vine Street, #300Lexington, Kentucky 40507

Western District of Kentucky................................Ford, Marisa J., AUSAUnited States Attorney’s OfficeBank of Louisville Building510 West Broadway, 10th FloorLouisville, Kentucky 40202

Eastern District of Louisiana................................ Mann, James, AUSAUnited States Attorney’s OfficeHale Boggs Federal Building500 Poydras Street, Room B-210New Orleans, Louisiana 70130

Middle District of Louisiana.................................Amundson, Corey, AUSA Deputy Criminal ChiefUnited States Attorney’s OfficeRussell B. Long Federal Building777 Florida Street, Suite 208Baton Rouge, Louisiana 70801

Western District of Louisiana............................... Jarzabek, Joseph G., AUSAUnited States Attorney’s Office300 Fannin Street, Suite 3201Shreveport, Louisiana 71101-3068

District of Maine....................................................Chapman, Jonathan R., AUSAUnited States Attorney’s Office100 Middle StreetEast Tower, 6th FloorPortland, Maine 04101

District of Maryland..............................................Su, Jonathan C., AUSAUnited States Attorney’s Office6500 Cherrywood LaneSuite 400Greenbelt, Maryland 20770

6.9


District of Massachusetts.......................................Walters, Sarah E., AUSAUnited States Attorney’s OfficeUnited States Courthouse1 Courthouse Way, Suite 9200Boston, Massachusetts 02210

Eastern District of Michigan.................................Reynolds, Karen, AUSAUnited States Attorney’s Office211 W. Fort Street, Suite 2001Detroit, Michigan 48226

Western District of Michigan................................Delaney, Brian K., AUSAUnited States Attorney’s Office330 Ionia, NW, 5th FloorGrand Rapids, Michigan 49503-0208(616) [email protected]

District of Minnesota.............................................Dixon, Joe, AUSAUnited States Attorney’s Office300 S. 4th Street, Suite 600Minneapolis, Minnesota 55415

Northern District of Mississippi...........................Mims, Robert J., AUSAUnited States Attorney’s Office900 Jefferson AvenueOxford, Mississippi 38655

Southern District of Mississippi........................... Hurst, Mike, AUSAUnited States Attorney’s Office188 East Capitol St., Suite 500Jackson, Mississippi 39201

Eastern District of Missouri..................................Muchnick, Steven A.United States Attorney’s Office111 S. 10th Street, Room 20.333St. Louis, Missouri 63102

Western District of Missouri.................................Mahoney, Kate, AUSAUnited States Attorney’s OfficeCharles Evans Whittaker Courthouse400 E. Ninth Street, 5th FloorKansas City, Missouri 64106

6.10


District of Montana............................................... Archer, Ryan M., AUSAUnited States Attorney’s OfficeWestern Security Bank Bldg2929 3rd Avenue, North, Ste 400Billings, Montana 59101

District of Nebraska...............................................Everett, Alan L., AUSAUnited States Attorney’s Office487 Federal Bldg., 100 Centennial Mall NorthLincoln, Nebraska 68508

District of Nevada..................................................Vasquez, Timothy S., AUSAUnited States Attorney’s Office333 South Las Vegas Blvd., Suite 5000Las Vegas, Nevada 89101

District of New Hampshire....................................Kinsella, Robert M., AUSAUnited States Attorney’s Office53 Pleasant Street, 4th FloorConcord, New Hampshire 03301

District of New Jersey.............................................Germano, Judith, AUSA Chief, Economic Crimes UnitUnited States Attorney’s Office970 Broad Street, Suite 700Newark, New Jersey 07102

District of New Mexico..........................................Higgins, Mary, AUSAUnited States Attorney’s Office201 Third Street, NW, Suite 900Albuquerque, New Mexico 87102

Eastern District of New York.................................McMahon, James ( Jay), AUSA Chief, Bus. & Secur. Fraud SectionUnited States Attorney’s Office271 Cadman Plaza EastBrooklyn, New York 11201

Northern District of New York..............................Storch, Robert P., AUSA Counsel to U.S. AttorneyUnited States Attorney’s OfficeJames Foley Federal Bldg.445 Broadway, Room 218Albany, NY 12207-2924

6.11


Southern District of New York.............................. Jonas, Bonnie, AUSAUnited States Attorney's OfficeOne St. Andrews PlazaNew York, New York 10007

Western District of New York................................Resnick, Richard, AUSAUnited States Attorney’s Office620 Federal Bldg., 100 State StreetRochester, New York 12207

Eastern District of North Carolina.......................Wheeler, Clay, AUSAUnited States Attorney’s OfficeSuite 800, Federal Building310 New Bern AvenueRaleigh, North Carolina 27601-1461

Middle District of North Carolina........................Chut, Frank, AUSAUnited States Attorney’s Office101 S. Edgeworth St.4th FloorGreensboro, North Carolina 27401

Western District of North Carolina......................Meyers, Kurt, AUSAUnited States Attorney’s Office227 West Trade Street, Suite 1650Charlotte, North Carolina 28202

District of North Dakota....................................... Jordheim, Lynn C., AUSAUnited States Attorney’s Office655 First Avenue, NorthSte 250Fargo, North Dakota 58102

Northern District of Ohio..................................... Rowland, Ann C.,Chief, Major Frauds and CorruptionUnited States Attorney’s Office801 West Superior AvenueSuite 400Cleveland, Ohio 44113

Southern District of Ohio..................................... Shoemaker, Brenda, AUSA Chief, Financial CrimesUnited States Attorney’s Office303 Marconi BoulevardSuite 200Columbus, Ohio 43215

6.12


Eastern District of Oklahoma...............................Guthrie, Gay, AUSAUnited States Attorney’s Office1200 West Okmulgee StreetMuskogee, Oklahoma 74401

Northern District of Oklahoma............................Gallant, Jeff, AUSAUnited States Attorney’s Office110 West 7th StreetSuite 300Tulsa, Oklahoma 74119-1029

Western District of Oklahoma .............................Kelly, Kerry A., AUSAUnited States Attorney’s Office210 West Park Avenue, Suite 400Oklahoma City, Oklahoma 73102

District of Oregon..................................................Caldwell, Lance, AUSAUnited States Attorney’s OfficeMark O. Hatfield U.S. Courthouse1000 SW Third Avenue, Suite 600Portland, Oregon 97204-2902

Eastern District of Pennsylvania...........................Goldberg, Richard, AUSA Chief, Financial Institution Fraud UnitUnited States Attorney’s Office615 Chestnut Street, Suite 1250Philadelphia, Pennsylvania 19106-4476

Middle District of Pennsylvania............................Brandler, Bruce, AUSAUnited States Attorney’s OfficeSuite 220, Federal Building228 Walnut StreetHarrisburg, Pennsylvania 17108

Western District of Pennsylvania..........................Cessar, Robert, AUSAUnited States Attorney’s Office633 USPO & Courthouse, Suite 40007th Avenue & 700 Grant StreetPittsburgh, Pennsylvania 15219

District of Puerto Rico.......................................... Lopez, Ernesto, AUSAUnited States Attorney’s OfficeTorre Chardon, Suite 1201350 Carlos Chardon AvenueSan Juan, Puerto Rico 00918

6.13


District of Rhode Island........................................ Reich, Andrew J., AUSAUnited States Attorney’s OfficeFleet Center50 Kennedy Plaza, 8th FloorProvidence, Rhode Island 02903

District of South Carolina..................................... Watkins, William, AUSAUnited States Attorney’s OfficeFirst Union Bldg.105 Spring Street, Suite 200Greenville, South Carolina 29063

District of South Dakota....................................... Zuercher, David, AUSAUnited States Attorney’s Office225 South Pierre Street, Room 337Pierre, South Dakota 57501-2489

Eastern District of Tennessee................................Cook, Steve H., AUSA Chief, Criminal DivisionUnited States Attorney’s Office800 Market Street, Suite 211Knoxville, Tennessee 37902

Middle District of Tennessee.................................Webb, John, Branch ChiefUnited States Attorney’s Office110 9th Avenue South, Suite A-961Nashville, Tennessee 37203

Western District of Tennessee...............................André, Carroll, AUSAUnited States Attorney’s Office800 Clifford Davis Federal Office Bldg.167 North Main StreetMemphis, Tennessee 38103

Eastern District of Texas........................................Shipchandler, Shamoil, AUSADeputy Criminal ChiefUnited States Attorney’s Office101 East Park Blvd., Ste 500Plano, Texas 75074

Northern District of Texas.....................................Saldana, Sarah, AUSAUnited States Attorney’s Office1100 Commerce Street, Ste 300Dallas, Texas 75242

6.14


Southern District of Texas.....................................Buchanan, James ( Jim) R.,Deputy Criminal ChiefUnited States Attorney’s Office919 Milam Street, Suite 1500P.O. Box 61129Houston, Texas 77208-1129

Western District of Texas.......................................Lane, Mark, AUSAUnited States Attorney’s Office816 Congress Ave., Ste 1000Austin, Texas 78701

District of Utah.......................................................Washburn, Loren, AUSAUnited States Attorney’s Office185 South State, Suite 400Salt Lake City, Utah 84111

District of Vermont................................................Waples, Gregory, AUSAUnited States Attorney’s OfficeFederal Building11 Elmwood Avenue, 3rd FloorBurlington, Vermont 05401

District of the Virgin Islands.................................Chisholm, Kim, AUSAUnited States Attorney’s OfficeFederal Building & Crthse5500 Veterans Drive, Room 260St.Thomas, Virgin Islands 00802

Eastern District of Virginia...................................Dry, Michael, AUSAUnited States Attorney’s Office600 E. Main St, Ste 1800Richmond, Virginia 23219

Western District of Virginia..................................Hogeboom, III, C. Patrick, AUSAUnited States Attorney’s Office310 1st Street, SWRoanoke, Virginia 24011

Eastern District of Washington.............................Harrington, Joseph H., Criminal ChiefUnited States Attorney’s Office920 W. Riverside, Suite 340Spokane, Washington 99210

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Western District of Washington........................... Blackstone, Carl, AUSAUnited States Attorney’s Office700 Stewart Street, Suite 5220Seattle, Washington 98101-1271

Northern District of West Virginia.......................Stein, Michael, AUSAUnited States Attorney’s Office1125 Chapline Street, Ste 3000Wheeling, West Virginia 26003

Southern District of West Virginia.......................Robinson, Susan M., AUSAUnited States Attorney’s Office300 Virginia Street, East, Room 4000Charleston, West Virginia 25301

Eastern District of Wisconsin...............................Haanstad, Gregory, AUSA Deputy Criminal ChiefUnited States Attorney’s Office517 East Wisconsin AvenueMilwaukee, Wisconsin 53202

Western District of Wisconsin..............................Vaudreuil, John W., United States AttorneyUnited States Attorney’s Office660 West Washington Avenue, Suite 303Madison, Wisconsin 53703

District of Wyoming..............................................Leschuck, Lisa E., AUSAUnited States Attorney’s Office2120 Capitol Avenue, Room 4002Cheyenne, Wyoming 82001

firsth. year report – financial fraud enforcement task force · 2011. 6. 6. · firsth. year...

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