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Whistleblower Lawyer Discusses the DOJ, the NYT, and Mortgage Fraud

Here’s a story from the New York Times that really never gets old.

Gretchen Morgenson, one of the few business columnists worth reading, who jumped all over the United States Department of Justice for not prosecuting (enough) executives involved in the mortgage meltdowns of the past few years. She uses the “F” word quite explicitly for fraud. Morgenson reports on an internal audit of the DOJ and says:

“The report, called ‘Audit of the Department of Justice’s Efforts to Address Mortgage Fraud,’ covers the period from 2009 to 2011. It vindicates anyone who ever questioned the government’s claim that the reason there weren’t more mortgage-related fraud cases is because the cases just weren’t there to be made.”

Morgenson takes the DOJ to task for — and this is a polite version of how she puts it — overstating their success, overstating the degree to which they made mortgage fraud a priority, and overstating their ability to go after mortgage fraud. 

That may or may not be a fair critique, but here is the real question: Does the Justice Department have the resources needed to go after complicated financial fraud as aggressively as we would like?

The solution may be counterintuitive to the New York Times and, maybe, to obtaining the publicity the DOJ usually pursues.

First, the DOJ should flat out say they need more resources to go after fraud in the financial sector (as well as other sectors with a connection to the federal government).

There is no harm in admitting what every single U.S. Attorney knows and many government officials might tell you — as long as they first say that their views are their own and “…do not reflect official government policy,” — which is they  need more resources. Put the ball in the hands of Congress.  Dare them to vote against resources to fight fraud.

The U.S. Attorney’s Office has a lot to do and fighting fraud overall –much less one area of fraud — is only one of their many responsibilities.  It falls under the DOJ’s Civil Division and there, too, the resources are split.

Still, if you take a look at the organization chart for the Department of Justice you will find the Frauds Section of the Commercial Litigation Branch, and they can make an important claim, which may even understate the facts:

“The Fraud Section litigates many of the Civil Division’s highest stakes cases, in money terms. Working with United States Attorneys throughout the country, Frauds Section attorneys have recovered nearly $1.8 billion in each of the past seven years from individuals and corporations who have defrauded the government. Since 1986, the Fraud Section, in close collaboration with USAO attorneys, has recovered over $20 billion in settlements and judgments.

Since this is the section that works with False Claims Act whistleblowers, these figures are actually low. I’ll get into that in follow up blogs. However, the first point is this: Here is a resource that makes money for the government. It also saves more money for the government when contractors decide that being involved in fraud is not good business. 

Second, and you knew this was coming, active support of whistleblowers bringing these kinds of cases is the best way to make this work. Mortgages are federally insured and also involve money from Fannie Mae and Freddie Mac. There is an interest, which can be translated into False Claims cases when fraud occurs in the financial world. Smart whistleblowers have both inside knowledge and the expertise the Justice Department needs to succeed with these cases.

More resources are essential. I know Ms. Morgenson wants to bash the DOJ for overstating their ability to fight fraud. Yet, the DOJ did settle cases involving massive recoveries against banks this year. What could the Justice Department recover if, instead of a few hundred attorneys (maybe) spread out among the 94 U.S. Attorney’s offices and a couple of hundred with many other responsibilities in the Main Justice Division, the DOJ had more resources devoted to fighting fraud?

Suppose the DOJ could resolve ten more large False Claims Act cases a year, and recover a billion more dollars to the Federal government as a result? How many lawyers and investigators could you hire with that kind of savings?

Friends, a billion dollars is not that much more to recover. It would, however,  hire 4,000 people at a total cost of 250,000 per person (figure benefits administration, offices, etc.). Does anybody seriously think that 4,000 more people dedicated to fighting fraud in this country, and working with whistleblowers, would not return more than a billion dollars to the government from the companies that are committing fraud? Medicare is scheduled to spend almost $600 billion in this fiscal year alone. Defense contracting and the mortgage industry are expected to expend similar amounts.

Let’s get serious; stop whining about some press releases, stop pretending we are doing enough, and hire 4,000 people to work with whistleblowers and really use the False Claims Act to fight fraud. Then the government could start to recover significant losses.