On February 11, 2009, FBI Deputy Director John S. Pistole testified before the U.S. Senate Judiciary Committee that the FBI has opened investigations into more than 500 cases of alleged corporate fraud, including 38 that involve major firms and are "directly related" to the national economic crisis. According to Pistole, these investigations involve "financial statement manipulation, accounting fraud and insider trading." The government sees the number of corporate fraud investigations linked to the financial crisis "potentially rising into the hundreds," said Pistole.

The comments came as Congress moves to tighten fraud laws and has requested that the Justice Department prosecute financial crimes more aggressively to safeguard public money used in the recent financial bailouts. Senate Judiciary Committee Chairman Patrick Leahy is pushing legislation that would authorize increased spending to hire more fraud prosecutors and FBI financial fraud investigators. The legislative proposals include covering mortgage lenders under bank-fraud laws, criminalizing false statements to mortgage lenders, and extending U.S. fraud laws to cover activities related to federal bailout funds as well as commodities options and futures trading. According to Senator Leahy, the government has not "paid enough attention to the mortgage and financial fraud that have so dramatically contributed to the economic downturn."

In addition to corporate fraud, Pistole testified that the number of mortgage fraud cases investigated by the FBI has risen from 881 in fiscal year 2006 to 1,600 in fiscal year 2008. Rather than focusing on individual purchasers, Pistole informed the Senate Committee that the bureau is focusing on industry professionals generating fraud schemes.

In light of the increase in government investigations into corporate fraud and potential changes in the law, it is important that every corporation reassess the effectiveness of its compliance programs and take steps to protect itself from fraudulent activities. To inquire about the protections available to your company and its employees, or about the ramifications of these changes to you or your organization, please contact Henry E. Hockeimer, Jr., Partner, White Collar/Investigations Group at 215.854.8204 or hockeimerh@ballardspahr.com.


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This newsletter is a periodic publication of Ballard Spahr LLP and is intended to alert the recipients to new developments in the law. It should not be construed as legal advice or legal opinion on any specific facts or circumstances. The contents are intended for general informational purposes only, and you are urged to consult your own lawyer concerning your situation and specific legal questions you have.