FBI: 530 Corporate Fraud Probes in Progress

Those, plus 1,600 mortgage fraud investigations, are straining the bureau’s resources.

Stephen Taub – CFO.com | US

February 11, 2009

The long prison terms handed out to high-profile fraud perpetrators at Enron, WorldCom, Tyco, and others this decade apparently haven’t had much of a deterrent effect.

The FBI has more than 530 open corporate fraud investigations, including 38 directly related to the current crisis, deputy director John Pistole testified today before the Senate Judiciary Committee. These are mostly looking into possible financial statement manipulation, accounting fraud, or insider trading.

In addition, the number of open investigations into mortgage fraud by financial institutions and other corporations has nearly doubled since 2006, to more than 1,600.

The probes are “straining the FBI’s limited white-collar-crime resources,” Pistole stated.

In fact, the bureau doesn’t have the wherewithal to pursue all of the mortgage-fraud schemes it suspects are being operated. It is focusing its efforts on those perpetrated by industry insiders who are part of organized enterprises to commit what Pistole called “mortgage fraud for profit.”

Currently trendy in mortgage fraud trends, he said, include equity skimming, property flipping, mortgage identity-related theft, and foreclosure rescue scams.

Those practices are nothing new. Equity skimming schemes involve the use of corporate shell companies, corporate identity theft, and the use or threat of bankruptcy or foreclosure to dupe homeowners and investors. Property flipping involves using identity theft, straw borrowers, and shell companies, along with industry insiders, to override lender controls and conceal the methods of the scheme. Identity theft is a growing problem in its many forms, including mortgage documents.

The FBI compiles data on mortgage fraud through Suspicious Activity Reports (SARs) filed by financial institutions and through Department of Housing and Urban Development reports. The FBI also receives complaints from the industry at large.

In December the FBI dedicated resources to create the National Mortgage Fraud Team in Washington, D.C. The team has specific responsibility for all management of the mortgage fraud program at both the origination and corporate level.

Pistole noted that the financial crisis has required the FBI to move resources from other white-collar crime and criminal programs in order to address this problem. Since January 2007, the FBI has increased the number of agents and analysts working on mortgage fraud investigations.

The bureau currently has 16 mortgage fraud task forces and 39 working groups. It increased the number of special agents investigating mortgage fraud cases from 120 in fiscal 2007 to 180 in 2008.

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