Stemming the Surge of Fraud

Fraud and Corruption
Stemming the Surge

04/17/08

The FBI is investigating 19 corporate fraud matters related to the sub-prime lending crisis, the Director told litigators in a speech on April 17.

A day after warning the Senate about a “tremendous surge” in the FBI’s mortgage fraud investigations, Director Robert Mueller talked in more detailed terms about the growth in both corporate fraud and public corruption cases at the annual conference of the American Bar Association’s Section of Litigation in Washington, D.C.

Despite limited resources, Mueller said that the FBI’s corporate fraud cases have grown more than 80 percent since 2003. Last year, we had more than 490 corporate and securities fraud convictions.

He predicted that the problem will only worsen because of the “ripple effect of the sub-prime crisis and its impact on the credit market.” The FBI, he said, has already “identified 19 corporate fraud matters related to the sub-prime lending crisis…targeting accounting fraud, insider trading, and deceptive sales practices.” And, we’re currently investigating more than 1,300 mortgage fraud matters.

Mueller believes part of the problem is “rampant conflicts of interest in the corporate suites.” He said that FBI investigations “further emphasize the need for independent board members, auditors, and outside counsel. Shareholders rely on the board of directors to serve as the corporate watchdog. ...[But] board members are often beholden to the executives they are expected to oversee.”

Acknowledging recent FBI missteps resulting from inadequate internal controls—and a new Office of Integrity and Compliance to identify risks before they become problems—Mueller said, “As we all understand, it is better for a company to self-report and remediate its own wrongdoing before the FBI and the Department of Justice become involved. Executives who let the situation escalate to the point of a sudden restatement—and a resulting loss of shareholder confidence—often do greater harm to the companies they are trying to protect than if they had exercised early intervention.”

Mueller said that in his days as a defense counsel, he “met a number of executives who could rationalize every bad decision,” warning that “it is a slippery slope from behavior that skirts ethical or legal boundaries to behavior that crosses the line completely.”

The FBI also works to combat corruption in the public sector—our top criminal priority—because, as the Director pointed out in his remarks, “democracy and corruption cannot co-exist.”

Currently, the FBI has more than 2,500 open public corruption cases, an increase of more than 50 percent since 2003. During the past two years alone, more than 18,000 public officials have been convicted.

“The FBI,” Mueller said, “is uniquely situated to address public corruption. We have the skills to conduct sophisticated investigations. But more than that, we are insulated from political pressure. We are able to go where the evidence leads us, without fear of reprisal or recrimination.”

In the end, Mueller said, “it does not matter if the corruption is national or local…if it is millions of dollars or merely hundreds. There is no level of acceptable corruption.”

We encourage you to read the full text of the Director’s speech. And learn more about our efforts to combat both corporate fraud and public corruption.