Subject to Inquiry: White Collar, Congressional, SEC, Energy Enforcement & Other Government Inquiries

Neil MacBride, the U.S. Attorney for the Eastern District of Virginia (the “Eastern District”), announced last Friday the creation of the Virginia Financial and Securities Fraud Task Force.  This aggressive new task force will coordinate with representatives from the Securities and Exchange Commission, Commodity Futures Trading Commission, FBI, Postal Service, Internal Revenue Service and state law enforcement agencies.

The announcement comes as no surprise on the heels of MacBride’s widely-reported announcements over the last several months concerning the expansion of his office’s capabilities to tackle financial crime.

The new task force will enhance the Eastern District’s ability to prosecute major national financial fraud cases.  This is but one more step in the Eastern District’s apparent competition with the Southern District of New York for these high profile cases.  The Southern District has historically been the most prominentvenue for financial fraud cases, but the Eastern District has been ramping up its efforts over the last six months and appears ready to give the Southern District a run for its money.

Known as the “rocket docket” because its judges push cases forward on an extremely expedited schedule, and armed with new prosecutors with financial expertise, the Eastern District is poised to prosecute these high-profile financial fraud cases quickly and expertly.

The Eastern District can claim jurisdiction over almost all securities fraud and other financial fraud cases involving public companies because the reports those companies are required to file with the SEC are sent to the EDGAR computer server located in Alexandria, Virginia.

In addition, the Eastern District’s proximity to Main Justice, as well as the federal agencies that will participate in the new task force, will be key to its ability to pursue these investigations aggressively and efficiently. 

The public demanded action in response to the financial crisis and the government promised a swift and aggressive response.  The Eastern District’s announcement is the latest evidence of the government’s preparations to punish financial fraud with its full weight.

The investigations into TARP-related criminal and civil misconduct show no signs of abating.  On April 20, 2010, the Office of the Special Inspector General for the Troubled Asset Relief Program (“SIGTARP”), the watchdog agency investigating conduct related to TARP assets, disclosed 84 ongoing criminal and civil investigations in its Quarterly Report to Congress.  SIGTARP is investigating not only TARP fraud but also TARP-related accounting, securities, bank, and mortgage fraud, insider trading, trade secrets theft, money laundering, false statements and obstruction of justice.  In a recent interview with Bloomberg News, Neil Barofsky, head of SIGTARP, said specifically that he was looking into potential TARP-related insider trading and whether bankers purchased stock in their own companies before it was publicly known that they would receive TARP funding.  In addition, as Barofsky stated in recent testimony before the Senate Finance Committee, SIGTARP plans to investigate mortgage-related securities similar to those at issue in the Goldman Sachs enforcement actions.  Barofsky said that though he would work with the SEC, SIGTARP would “lead the charge.”

The Quarterly Report highlights other investigations that showcase the breadth of SIGTARP’s reach.  As part of a mortgage fraud interagency task force, SIGTARP is investigating potential fraud at Omni National Bank (before its failure and Government takeover) and whether it had an impact on Omni’s application for TARP funds under the Capital Purchase Program.  Notably, Omni never actually received those funds.  SIGTARP investigations have also resulted in bank fraud charges against Mount Vernon Money Center executives which are connected to TARP because some of the allegedly misappropriated funds came from institutions in which taxpayers are invested through TARP.  In another fraud and money laundering case, TARP is implicated because the indicted telemarketing firm operators “took advantage of the publicity surrounding the Administration’s mortgage modification efforts” under the TARP-funded Making Home Affordable initiative to induce customers to purchase modification services that were never provided. 

These investigations – launched from multiple agencies and aimed at a range of activity emanating from TARP assets – make clear that the enforcement landscape stretches far beyond obvious misuses of TARP funds.