"'An economic 9/11,' warned Terry Connelly, dean of Golden Gate University's Ageno School of Business, of the potential fallout. As the ]bailout] package went down, panicked investors caused the Dow Jones industrials to nosedive nearly 780 points in their largest one-day point drop ever." Deseret News, 9/30/08 (Photo by Robert Caplin for the Wall Street Journal.)
As the Pillars of American Financial Empire begin to crumble, politicians promise salvation but end up in childish bickering and finger pointing which sends Wall Street plunging and Main Street panicking about the future. Everyone blames the greed and excess of corporate America; and people rightfully begin to ask: “How was this allowed to happen?” Historically, in times of crisis, when crime runs rampant and order turns to chaos, the most often asked question is “Where were the police?”
So where were the police, the regulators, and the prosecutors in the days, weeks and even years leading up to this catastrophe? The answer is: doing our jobs.
Years before most of America learned of the predatory lending practices of some national mortgage companies specializing in high-risk, “sub-prime” loans, I, and most other attorneys general, sued the largest of such companies for fraudulent and deceptive trade practices, and obtaining close to a billion dollars in fines from mortgage giants Household Finance Corporation, Household Realty Corp., Beneficial Finance Corp. and Ameriquest Mortgage! In announcing our settlement agreement with Ameriquest I said, "In the face of serious and widespread allegations of unfair and deceptive practices, Ameriquest has agreed to take important steps to protect future borrowers. It's also important that Ameriquest is paying a substantial amount of money to help provide restitution to past customers." For more information about these actions, click on these links:
Unfortunately, other companies failed to learn from the mistakes and misdeeds of these companies, and did not make the changes we imposed on them and ultimately it led to the collapse of the entire sub-prime market and the resulting mortgage crisis . That in turn fueled this larger financial crisis because of the concomitant losses to Wall Street firms dealing heavily in mortgage backed securities and the insurance companies that insured them. Obviously more can, and must be done!
White-collar crimes, which include fraud, bankruptcy fraud, bribery, insider trading, embezzlement, computer crime, medical crime, public corruption, identity theft, environmental crime, pension fund crime, RICO crimes, consumer fraud, occupational crime, securities fraud, financial fraud, and forgery, cost the United States more than $300 billion annually.
In an article in The Christian Science Monitor, staff writer Alexandra Marks reported that federal prosecutions for US white-collar crime dropped some 28 percent, as homeland security cases rose in priority. Quoting J. Boyd Page, senior partner at Page Perry LLC in Atlanta, she wrote, "people can steal a much greater amount of money with a pen than they can with a gun... If we don't take a stand to say, 'Look, this is wrong' ... then we turn our head, and it results in a lot of people thinking it's OK."
She reported that "according to the Justice Department's Office of the Inspector General, the FBI had 2,385 agents engaged in fighting financial crimes in 2000. By 2004, that number had dropped to 1,882." Notwithstanding the cuts, the FBI and DOJ were successful in prosecuting some of the biggest corporate criminals including Lay, Skillings, Kozlowski, Ebbers and the Rigas boys.
Ms. Marks accurately pointed out that "white-collar crime experts don't fault the Justice Department for lack of zeal in its work, but do worry about the shrinking resources devoted to keeping corporate America on its ethical toes." Knowing this, state attorneys general have stepped up their individual and collaborative investigations and prosecutions. In addition to the successful actions against predatory lenders, AGs have successfully prosecuted securities firms, energy companies, telecommunications giants and even AIG last year.
In Utah we continue our efforts to aggressively attack mortgage fraud on a local basis. Last February, the state legislature gave us a tough new law specifically called "Mortgage Fraud" and appropriated some money to start the creation of an in-house unit of investigators, analysts and prosecutors. In May of 2007, we formed a multi-jurisdictional task force with the U.S. Attorneys office in Utah, the Utah Division of Real Estate and local agencies, and have in the past year put a number of fraudsters behind bars.
For example, just last week I announced that the former president of Cobalt Homes, Brian K. Brady, 55, of Sandy [left] has started serving a 90 day jail sentence for defrauding homeowners and subcontractors. More importantly to his victims, he will pay more than $300,000 in restitution and serve six years on probation to ensure those payments are made. Earlier this year, we charged Val E. Southwick, [right] the founder and president of VesCor Capital, with nine second-degree felony counts of securities fraud for his involvement in a commercial real estate investment scheme where we alleged he bilked 817 investors out of an estimated $140 million.
These are uncertain times and those who defraud homeowners and lure Utahns into shady investment schemes, need to know with a certainty that the State of Utah will seek justice!
This Thursday and Friday, my office will be hosting our annual Utah Attorney General's White Collar Crime Conference where hundreds of investigators, analysts and prosecutors will gather once again to be educated into the latest scams and schemes and to further develop collaborative relationships to combat all manner of white collar crime in Utah.
As the economic crisis deepens and politicians debate rescue policies, the police will continue to do everything within our power to protect and serve, and to uphold the rule of law so that our dynamic and powerful democratic free market system can survive and once again flourish.