Anti-Fraud Bill Clears Judiciary Committee

WASHINGTON (Thursday, March 5, 2009) – The Senate Judiciary Committee Thursday voted to report the Fraud Enforcement and Recovery Act (FERA) to the full Senate for consideration.  The legislation would increase tools to help prosecutors combat fraud. 

The bill was introduced by Committee Chairman Patrick Leahy (D-Vt.) and Committee member Chuck Grassley (R-Iowa) on February 5.  Freshman Senator and Committee member Edward Kaufman (D-Del.) is an original cosponsor of the legislation.  Senators Chuck Schumer (D-N.Y.) and Amy Klobuchar (D-Minn.) have also cosponsored the legislation.

The Fraud Enforcement and Recovery Act will authorize funding and amend federal law to give law enforcement enhanced tools for fighting fraud.  More than 60,000 cases of mortgage fraud were reported in 2008, nearly 10 times as many as in 2002.  The bill authorizes funding to increase the number of agents from the Federal Bureau of Investigation (FBI) working on the mortgage fraud task force, increases funding to the U.S. Secret Service to combat financial crimes, as well as funding to hire fraud prosecutors for the Department of Justice and FBI. 

Leahy said, “There should be strong bipartisan support for this bill.  The Fraud Enforcement and Recovery Act will correct this serious problem by strengthening the federal government’s capacity to investigate and prosecute the kinds of financial frauds that have so severely undermined our economy and hurt so many hard working people in this country.”

Grassley said, “Today’s action by the Judiciary Committee is good news for innocent victims that fell prey toshady practices by unscrupulous individuals looking to line their own pockets.  We’re sending a message by revising our laws to ensure criminals are brought to justice, law enforcement has the tools to uncover these fraudulent schemes, and bad actors are taken off the streets.   We’re also ensuring that the False Claims Act, which has recovered nearly $22 billion to the federal treasury and remains the number one tool to recover Government funds lost to fraud and abuse, applies to any false or fraudulent claim.”

Kaufman said, “Prosecuting bad people won't put an end to all bad behavior, but it will make those people in the board rooms, at the trading desks, and in the mortgage industry think twice before they look the other way.  When people rob banks, they know they’ll go to jail. When bankers rob people, they should know they’ll go to jail, too.”

The Fraud Enforcement and Recovery Act will:

  • Amend the definition of “financial institution” to extend federal fraud laws to mortgage lending business not directly regulated or insured by the Federal government
  • Amend the major fraud statute to protect funds expended under the Troubled Asset Relief Program (TARP) and the economic stimulus package
  • Authorize funding to hire fraud prosecutors and investigators at the Department of Justice, the FBI, and other law enforcement agencies, and authorize funding for U.S. Attorneys’ Offices to help staff FBI mortgage fraud task forces.
  •  Amend the federal securities statute to cover fraud schemes involving commodities futures and options
  • Amend the criminal money laundering statute to make clear that the proceeds of specified unlawful activity include the gross receipts of the illegal activity, and not just the profits of the activity
  • Improve the False Claims Act to clarify that the Act was intended to extend to any false or fraudulent claim for government money or property, whether or not the claim is presented to a government official or employee, whether or not the government has physical custody of the money, and whether or not the defendant specifically intended to defraud the government.

Leahy and Grassley worked closely with Schumer, Klobuchar, and Kaufman to improve the legislation.  Schumer introduced a complementary bill calling for additional resources for FBI agents, Assistant U.S. Attorneys, and staff at the Securities and Exchange Commission.

On February 11, Leahy chaired a Judiciary Committee hearing to examine how to fight financial fraud during a struggling economy. 

Leahy’s statement for the record follows.

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Statement Of Senator Patrick Leahy (D-Vt.),
Chairman, Senate Judiciary Committee,
On S. 386, The Fraud Enforcement and Recovery Act Of 2009
Executive Business Meeting
March 5, 2009

Just last week, we learned of the latest scandals in the financial industry, as the leading money managers of WG Trading Co. and Westridge Capital, investment firms in Connecticut, were charged with a $650 million dollar fraud scheme, which may have been ongoing for more than a decade.  According to the charges, these men stole hundreds of millions of dollars invested by colleges and pension funds, and just used it for their own lavish lifestyles. 

Sadly, this is just the latest in a series of extraordinarily brash frauds, like the now infamous $50 billion dollar Madoff  “Ponzi” scheme, that have gone undetected for years, exposing just how important it is for us to rebuild and reform our fraud enforcement in this country.

The Fraud Enforcement and Recovery Act of 2009 will correct this serious problem by strengthening the Federal Government’s capacity to investigate and prosecute the kinds of financial frauds that have so severely undermined our economy and hurt so many hard working people in this country.  It would also provide the resources and legal tools needed to police and deter fraud in connection with the massive bailout and recovery packages now being implemented.

As we heard three weeks ago at this Committee’s hearing on fraud enforcement, we need to respond now the way we did following the Savings and Loan Crisis nearly two decades ago by hiring more agents, analysts, and prosecutors and allocating resources to catch those who have taken advantage of these difficult times to profit from fraud. 

I want to recognize Senator Grassley, who joined me to introduce this bill and has continued to work with me to improve this legislation even after its introduction.  Senator Grassley and I have also worked closely with Senator Schumer to improve this bill.  With his input, we have agreed to authorize more funds for the FBI and the U.S. Secret Service in this complete substitute.   I also thank two of our newest Members for their engagement on this issue. Senator Kaufman has been active and committed from day one, and Senator Klobuchar is also a cosponsor of the bill.

Today, Senator Grassley and I, together with Senator Schumer, Senator Klobuchar and Senator Kaufman, are offering a complete substitute in Committee to make several improvements to the bill, as well as to address several technical corrections and clarifications offered by the Justice Department.  I want to thank Senator Schumer for his contributions, as well as Senator Shelby, who has also been a leader on efforts to combat fraud and has worked closely with Senator Schumer and with me.  I look forward to working with both of them to move this important legislation, and other key anti-fraud initiatives, forward. 

There should be strong bipartisan support for this bill.  The Justice Department is supportive of this bill, as are the FBI, the Postal Inspection Service, the HUD Inspector General, and the Secret Service.  I hope all Senators can join us to adopt this substitute amendment and report this bill to the Senate without delay.

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