In an acknowledged bid for publicity to deter future crimes, the FBI today announced it had charged 406 people involved in 144 unrelated mortgage fraud cases since March 1 as part of an effort dubbed "Operation Malicious Mortgage."
The FBI said most of the cases involved lending fraud, foreclosure rescue scams or mortgage-related bankruptcy schemes, causing about $1 billion in losses. Five dozen people were arrested in 15 judicial districts on Wednesday alone.
Banks and other financial institutions filed 52,868 suspicious activity reports involving suspected mortgage fraud in 2007, an increase of 42 percent over the year before, the Financial Crimes Enforcement Network reported in April (see story).
The industry-financed Mortgage Asset Research Institute (MARI) says it may be three to five years before many instances of fraud and misrepresentation in loans made in 2007 are discovered. Many adjustable-rate mortgage (ARM) loans will be refinanced, "potentially blocking discovery of some of these issues," MARI concluded (see story).
FBI Director Robert Mueller said today that the bureau obtained 321 mortgage fraud indictments and 260 convictions in 2007. The bureau has increased the number of agents devoted to mortgage fraud investigations from 120 in 2007 to 180, he said.
Asked whether the 1,400 mortgage fraud cases the FBI currently has open represents only a fraction of the problem, Mueller said it was a "substantial number of investigations," and, from his perspective, "not a small number."
But he acknowledged that the bureau has "always had to prioritize" resources, "particularly in the wake of (the) Sept. 11" attacks, after which the FBI diverted many agents from white-collar crime investigations into counter-terrorism efforts.
Mueller acknowledged that one reason several months of statistics on mortgage fraud arrests were released at today’s press conference was "the deterrent factor," and the desire to let criminals know "we will follow up (on suspicious activity reports), we will investigate, and justice will be done."
The FBI identified builder-bailouts, seller assistance, short sales, foreclosure rescue and identity theft exploiting home equity lines of credit as among the most prevalent mortgage fraud schemes in 2007 (see story).
In an unrelated action, the U.S. Attorney’s Office for the Eastern District of New York announced indictments of two senior managers of two failed Bear Stearns hedge funds. Ralph Cioffi and Matthew Tannin were charged with conspiracy, securities fraud and wire fraud in connection with alleged misrepresentations made to investors before the funds collapsed in the summer of 2007 at a $1.4 billion loss. Attorneys for the men maintain they are innocent.
Mueller said the bureau continues an investigation of 19 companies involved in the origination and securitization of subprime mortgage loans for possible accounting fraud, insider trading, and the failure to disclose the valuations of securitized loans and derivatives.
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