DOJ sets up new MBS working group to step up enforcement






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Publication: Mortgage Banking
Date published: March 1, 2012

On Jan. 27, Attorney General Eric Holder announced the formation of a new mortgage-backed securities (MBS) working group as part of the Financial Fraud Enforcement Task Force. The goal is to step up enforcement and investigations of financial misconduct in the MBS market on both the civil and criminal fronts.

The first full meeting of the working group occurred on Jan. 27 - the same day the group was announced. The working group members include: Robert Khuzami, director of enforcement for the Securities and Exchange Commission (SEC); Shaun Donovan, secretary of the Department of Housing and Urban Development (HUD); Eric Schneiderman, attorney general for the state of New York; John Walsh, United States attorney for the District of Colorado; Tony West, assistant attorney general for the Justice Department's Civil Division; and Lanny Breuer, assistant attorney general for the Criminal Division.

Holder said the high-powered enforcement team will be leading a new initiative that will operate as part of the Financial Fraud Enforcement Task Force. The attorney general said, "the working group will streamline and strengthen current and future efforts to identify, investigate and prosecute instances of wrongdoing in the packaging, selling and valuing of residential mortgage-backed securities. I am confident that this new effort will improve our ability to ensure justice for victims; help restore faith in our financial markets and institutions; and allow us to answer the call that President Obama issued earlier this week, in his State of the Union address."

Holder noted that the working group won't be starting from scratch. He said over the past three years the government has "been aggressively investigating the causes of the financial crisis. And we have learned that much of the conduct that led to the crisis was - as the president has said - unethical and, in many instances, extremely reckless. We also have learned that behavior that is unethical or reckless may not necessarily be criminal. When we find evidence of criminal wrongdoing, we bring criminal prosecutions. When we don't, we endeavor to use other tools available to us - such as civil sanctions - to seek justice."

In his remarks announcing the new working group, Holder noted that civil subpoenas recently were issued to ii financial institutions tied to this new group's efforts.

The new working group consists of "at least 55 DOJ attorneys and other investigative staff/' according to the BuckleySandler LLP law firm in a note to clients on the new group. It will include active participation by numerous federal and state entities, including the Consumer Financial Protection Bureau (CFPB).

Holder said the new group brings together local, state and federal resources including HUD, the Federal Bureau of Investigation (FBI), the Internal Revenue Service (IRS), CFPB, the Financial Crimes Enforcement Network (FinCEN) and the Federal Housing Finance Agency Office of Inspector General.

The attorney general said, "Of course 1 can't go into detail about our existing investigations. But I can tell you that significant efforts are moving forward, by both federal and state authorities. And I can assure you that, if we uncover evidence of fraud or other illegal conduct, we will bring the appropriate civil or criminal charges."

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