Why Can’t The Feds Prosecute Systemic Fraud?

(2 pm. – promoted by ek hornbeck)

Cross posted from The Stars Hollow Gazette

In 2007, Eileen Foster, a former executive vice president in charge of fraud investigations for Countrywide Financial Corp., and her team began looking through documents in the company’s mortgage division. What she uncovered was massive fraud that was being committed on a daily basis. When Countrywide was acquired by Bank of America in 2008, Ms. Foster was fired for “inappropriate and unprofessional conduct.”

Ms. Foster filed a wrongful termination lawsuit with the Department of Labor. During her three year fight to clear her name, the extensive fraud committed by Countrywide employees and executives came to light. Bank of America, as typical, says that this in nothing new and the claims against Countrywide were settled. In the first part of a two part article by Michael Hudson published at i-Watch News, recounts the extent of the fraud committed by Countrywide employees, condoned by executives and covered up by BoA:

In government records and in interviews with iWatch News, Foster describes other top-down misconduct:

   

  • She claims Countrywide’s management protected big loan producers who used fraud to put up big sales numbers. If they were caught, she says, they frequently avoided termination.
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  • Foster claims Countrywide’s subprime lending division concealed from her the level of “suspicious activity reports.” This in turn reduced the number of fraud reports Countrywide gave to the U.S. Treasury’s Financial Crimes Enforcement Network.
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  • Foster claims Countrywide failed to notify investors when it discovered fraud or other problems with loans that it had sold as the underlying assets in “mortgage-backed” securities. When she created a report designed to document these loans on a regular basis going forward, she says, she was “shut down” by company officials and told to stop doing the report.
  • Eileen Foster appeared on 60 Minutes in an interview with Steve Kroft:

    60 Minutes also interviewed the head of the criminal division at the Department of Justice, Larry Brewer asking him about the lack of prosecutions that could be done under the Sarbanes-Oxley law. Brewer’s response was “he thinks nobody ‘lacks confidence’ in the department’s ability to prosecute financial crime”:

       60 MINUTES: We spoke to a woman at Countrywide who was a senior vice president for investigating fraud and she said that the fraud inside countrywide was systemic. That it was basically a way of doing business.

       BREWER: Well, it’s hard for me to talk about a particular case. Of course in the Countrywide case, terrific office, US Attorney’s office in Los Angeles, investigated that. Interviewed many, many people. Hundreds of people, perhaps. Reviewed millions of documents.

       60 MINUTES: Do you lack confidence in bringing cases under Sarbanes-Oxley?

       BREWER: Steve, no one is really has accused this Department of Justice, or this division, or me of lacking confidence. If you look at the prosecutors all over the country, they are bringing record cases with respect to all kinds of criminal laws. Sarbanes-Oxley is a tool, but it’s only one tool. We’re confident. We follow the facts and the law wherever they take us. And we’re bringing every case that we believe can be made.

    Some state attorney generals are filing suits and conducting investigations. Massachusetts AG Martha Coakley filed papers in state court suing five major mortgage lenders, including Bank of America, and MERS. Meanwhile, there have been no federal prosecutions of any top level executives and federal prosecutions of financial fraud have fallen to a 20 year low but thousands of Occupy Wall Street protesters have been arrested.

    As Zaid Jilani concludes at Think Progress:

    After all, allowing criminals to help cause a global recession that plunged 60 million people into extreme poverty and then proliferate in an industry will only sully its reputation.

    1 comment

      • TMC on December 7, 2011 at 12:38 pm
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