FBI Halts Some Cases to Investigate Mortgage Frauds (Update1)
By Robert Schmidt
June 12 (Bloomberg) -- The U.S. Federal Bureau of Investigation, confronting a surge in mortgage fraud, has ordered more than two dozen of its field offices to stop probing some financial crimes so agents can focus on the subprime crisis.
Kenneth Kaiser, chief of the bureau's criminal investigative division, issued the directive late last week on a video conference call with the heads of 26 offices in areas where mortgage crime is rampant, said Bill Carter, an FBI spokesman in Washington.
Carter said the shift was made after an analysis of how agents are spending their time. The FBI traditionally has moved investigators to address urgent needs, he said. About 150 agents were working on more than 1,300 mortgage cases before the change.
``If you're seeing a significant crime problem, you have to move resources,'' Carter said yesterday. ``We've got a big problem with mortgage fraud.''
The subprime loan crisis sparked a collapse in the credit markets and triggered almost $400 billion in losses and writedowns on Wall Street. It has also driven hundreds of thousands of families from their homes as foreclosures hit record numbers.
At the FBI, white-collar fraud became less of a priority when President George W. Bush ordered the agency to concentrate on national security after the Sept. 11 terrorist attacks. Lawmakers have also criticized the Bush administration for reducing funding for crime fighting.
`No Surprise'
``It comes as no surprise that law enforcement is spread too thin to cover all the bases,'' Senator Joseph Biden, a Delaware Democrat and member of the Judiciary Committee, which oversees the FBI, said in an e-mailed statement. ``Over the past several years, the administration has reassigned as many as 2,400 FBI agents from fighting crime to combating terrorism without replacing them.''
The 26 field offices were told to temporarily suspend opening new cases dealing with price fixing, mass marketing, wire fraud, mail fraud and environmental crimes, Carter said. Current cases aren't being dropped, he said. The FBI has 56 field offices and about 12,000 agents.
Carter said the bureau is ``not walking away'' from pending investigations. ``We're just saying, `Don't open any new cases,''' he said.
The affected FBI offices are in states including Florida, Georgia, California, Nevada, Arizona, Texas, New York, Ohio, Michigan, Illinois, Indiana and Minnesota, he said. All are considered mortgage fraud ``hot spots,'' he said.
Public Message
``This is clearly intended to send a public message that the bureau is taking these matters seriously,'' said Joshua Hochberg, a former chief of the Justice Department's fraud section who is now a partner at the McKenna Long & Aldridge law firm in Washington.
FBI Director Robert Mueller told Congress in April that he had seen a ``tremendous surge'' in cases related to subprime loans, which are made to borrowers with poor credit.
The cases, known as loan-origination fraud, involve schemes to flip properties for a quick profit, cheat banks or rip off homeowners facing foreclosure. Targets of investigations can include real-estate agents, home builders, lawyers, appraisers and borrowers.
One measure of the increase: Last fiscal year, which ended Sept. 30, the FBI received almost 47,000 so-called Suspicious Activity Reports detailing potential mortgage crimes, a 31 percent jump over the previous year. In the first half of 2008, there already have been 38,000 reports.
$813 Million
While the FBI says it's impossible to measure the amount of money lost from mortgage frauds, a study it issued in May said 7 percent of last year's Suspicious Activity Reports provided loss amounts, which totaled more than $813 million. That number ``is just the tip of the iceberg,'' Kaiser said at the time.
Mueller has been reluctant to ask for additional money for the mortgage investigations. Maryland Senator Barbara Mikulski, who heads the appropriations subcommittee for the FBI, urged him during his April testimony to list his budget needs to tackle the mortgage problem.
``Diverting FBI resources to deal with cases of mortgage fraud is exactly what Chairwoman Mikulski wants to avoid,'' Melissa Schwartz, a spokeswoman for Mikulski, said late yesterday. Mikulski, a Democrat, will continue to work to get the bureau the resources it needs, her spokeswoman said.
Speaking to reporters in April, Mueller said the agency will be able to do its job.
Enron and WorldCom
``We'll put whatever agents onto this as necessary to address it,'' he said, likening the subprime cases to the accounting frauds investigated by the FBI earlier this decade beginning with the collapses of Enron Corp. and WorldCom Inc.
``It took the same type of team approach, agents, accountants, prosecutors, to address that wave of cases,'' Mueller said. ``And we did successfully in my mind address that wave of cases, and we'll do the same with this wave.''
Attorney General Michael Mukasey said last week that the Justice Department, the FBI's parent agency, won't create a national task force to combat mortgage fraud as the government did with corporate crime after Enron.
``This isn't that kind of phenomenon,'' he said.
To contact the reporter on this story: Robert Schmidt in Washington at rschmidt5@bloomberg.net.
Last Updated: June 12, 2008 12:48 EDT
