Exclusive: U.S. seeks new tactic in financial crisis prosecutions

Wed Jul 17, 2013 5:00pm EDT
 
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By Emily Flitter

NEW YORK (Reuters) - U.S. federal prosecutors are considering a new strategy for criminally charging Wall Street bankers who packaged and sold bad mortgage loans at the height of the housing bubble, according to a federal official familiar with the investigation.

The official said federal authorities are finding new evidence they say indicates intent to commit fraud over the packaging and sale of mortgage bonds backed by subprime home loans in some of the civil lawsuits plaintiffs' lawyers have filed against large banks.

And they are exploring whether they can build criminal cases against bankers by using a 1984 law intended to punish individuals for scamming commercial banks.

The investigators are part of the Justice Department's Residential Mortgage-Backed Securities Working Group, a network of law enforcement agents and prosecutors - both state and federal - working together to probe the mortgage market meltdown that helped trigger the financial crisis.

"The RMBS Working Group members are aggressively investigating both civil and criminal matters across the country. RMBS Working Group members expect to announce more law enforcement actions in the future," said Adora Jenkins, a spokeswoman for the Justice Department.

The group keeps a close eye on every civil suit filed and holds regular conference calls to update its members on developments. It held a day-long meeting on Friday to discuss ongoing investigations and potential new targets, as well as legal strategies, according to the Justice Department.

The strategy involves a shift away from the more widely used securities fraud charge to a less common offense: bank fraud. The advantage is that perpetrators of bank fraud can be charged up to 10 years after their crimes, compared with the five-year statute of limitations on securities fraud, which has already run out on most events leading up to the 2008 financial crisis. A bank fraud conviction carries up to $1 million in fines and a maximum prison sentence of 30 years.

Rita Glavin, a partner at Seward & Kissel in New York who specializes in white-collar, criminal defense, said she thought the statute's broad scope gave prosecutors an opportunity to use it, and adding a conspiracy charge could help.   Continued...

 
The sign for a foreclosed house for sale sits at the property in Denver, Colorado March 4, 2009. REUTERS/Rick Wilking