The department, using its own funds and some from the Federal Housing Finance Agency inspector general’s office, went on a hiring spree. Two dozen support staff, such as financial analysts and investigators, were brought on, along with 10 prosecutors and 85 contract attorneys, according to data provided by the department. An additional 15 contract attorneys were hired for the office of New York Attorney General Eric Schneiderman who is co-chairman of the RMBS group.
Federal resources, including 11 assistant U.S. attorneys, helped Schneiderman sue JPMorgan over Bear Stearns mortgage bonds in October 2012, according to department data. Schneiderman, who said when the case was filed that it would be a template for future cases against issuers of mortgage-backed securities, said in a statement that the case is among those being negotiated in the department’s deal.
The group also had a hand in $417 million in settlements that the U.S. Securities and Exchange Commission reached with JPMorgan and Credit Suisse Group AG over RMBS sales a month later.
The probes picked up speed and a sense of urgency this spring as West brought in his counsel, Geoffrey Graber, to direct the effort, he said. Graber had just wrapped up getting the government’s lawsuit against McGraw-Hill Cos. and its Standard & Poor’s unit filed in California, alleging the companies knowingly understated the credit risks of bonds and derivatives.
That case wasn’t the product of the working group -- resulting instead from an investigation that lasted three years. It was, however, premised on the same law being used by the working group in its probes.
The law, the Financial Institution Reform, Recovery and Enforcement Act of 1989, known as FIRREA, is a remnant of the savings-and-loan crisis of the 1980s. It allows the government to sue an individual or group, rather than charge them with a crime, for fraud that affects a federally insured financial institution.
FIRREA carries a 10-year statute of limitations, giving the government double the time to bring its case than allowed under other securities laws.
Other advantages of FIRREA include a lower burden of proof than what is needed to win a criminal case as well as prosecutor access to secret grand-jury evidence that may have been developed in the course of separate criminal probes.
The U.S. can extract hefty penalties as well. FIRREA allows penalties of more than $1 million for each fraudulent statement or act, and as much as $5 million for continuing violations of underlying criminal statutes.
Using bank and industry insiders, members of the group identified who the key players were, the relationships between different entities and patterns of conduct and similarities among the various probes, West said.
“Understanding how the RMBS process worked from insider perspective was very important,” West said. “Once you began to get information about how something worked you could then look at other cases you were doing and if you saw that same pattern it really helped you begin to unravel some complexities involved in those cases.”
Earlier this year, Holder said he instructed the RMBS group to identify the most promising leads and direct personnel and funds to those matters. A set of possible cases were identified and deadlines for completing those matters were set. Prosecutors from less-promising cases were moved to those on the priority list.
“It was all with the thought that we needed to really focus our attention, focus our efforts, so that we could get to the results that would have a deterrent effect, would hold people and institutions accountable and do it as quickly as we could,” Holder said.
Holder held meetings in his conference room every two weeks with West, Graber and Michael Bresnick, who until August had been executive director of Obama’s Financial Fraud Enforcement Task Force, and others. A printout would be given to Holder that included all the cases under review with the current status of each probe along with a column for comments, he said. Calls were made to the U.S. attorneys managing the probes.
“Knowing you’re going to be speaking to the attorney general tends to keep people on task and on focus,” Holder said.
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