Prosecutors eyeing Wall Street mess look for lies

[WhiskeyGirl]

The Associated Press

12:12 PM PDT, October 20, 2008

NEW YORK -- Investigators are hunting through the remains of the stock-market collapse and housing bust of 2008 for fresh signs of white-collar crime, targeting many of the same types of misdeeds that precipitated past market downturns.

U.S. Attorney Benton Campbell of the Eastern District of New York said that companies and their products may have grown increasingly complex, but crimes following every market collapse are always very simple: "the classic lying, cheating, stealing type things."

"The more things change, the more they stay the same," he said in an interview.

The FBI, meanwhile, is investigating two dozen large financial firms on a wide range of charges. Those reportedly on the agency's list include mortgage-finance companies Fannie Mae and Freddie Mac, insurer American International Group Inc. and failed investment bank Lehman Brothers Holdings Inc.

In April, FBI director Robert Mueller diverted people from other assignments, committing 204 FBI agents to financial fraud investigations. On Monday, the bureau said 177 agents were handling mortgage fraud and other financial investigations. The bureau had no immediate response to questions about why fewer agents are now on the cases.

Despite the resources being deployed, it isn't always easy to land a conviction in a complicated white-collar case.

The Brooklyn federal case accused one of the men of pulling $2 million of his own money from the fund even as he was advising investors to maintain their investments. As the fund managers urged investors to put up more money, prosecutors said, internal communications revealed an outlook that was quite gloomy, with one of the bankers describing the subprime-mortgage market as "toast."

The hedge fund managers are awaiting trial; their lawyers say they are being made scapegoats for larger issues with the economy.

But while he believes that prosecutions related to the mortgage collapse will materialize, he said it would not be wise for prosecutors to overreact to wild swings in the stock market.

"The likelihood there is inherent criminality in all of that is extraordinarily low," he said.

Campbell said he was prepared to enlarge his team of prosecutors looking into financial crimes including securities fraud, accounting practices compliance and insider trading, but realized it was necessary to separate financial pain caused by market forces from criminal misconduct.

"Our job is to find the fraud," he said.

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http://www.latimes.com/business/la-fi-stockprobe21-2008oct21,0,4840510.story