Two Steps Forward, One Step Back in Fight Against Financial Fraud

This generally was a good week for taxpayers in the battle against bank fraud.  Justice Department prosecutors filed a lawsuit against Deutsche Bank, alleging reckless lending practices and fraud against the taxpayers through a federal loan insurance program.  The lawsuit seeks more than $1 billion for the taxpayers.

It’s a landmark case.  The buzz is that more cases against other banks accused of exploiting government housing programs might be on the way.

This case invokes a major update of the federal False Claims Act that I wrote amid the housing crisis clean-up in 2009.  The update reversed a number of court decisions that had weakened the law and were the first major legislative changes to the False Claims Act since the increased whistleblower incentives that I sponsored in the Senate and that were enacted in 1986.

The allegations against Deutsche Bank are the exact reason for shoring up the False Claims Act in 2009.  These are serious charges.  The government should have every possible tool available to recover stolen taxpayer dollars.  In addition to recovering tax dollars, the treble damages in the False Claims Act can deal a crippling blow to bad actors and help to deter future fraud.  It’s good to see the Justice Department pursuing a case in the taxpayers’ interest relatively soon after the 2009 improvements were enacted.

Another bright spot in the fight against financial fraud came through the Judiciary Committee, where I serve as Ranking Member.  The committee chairman and I introduced bipartisan legislation to bolster law enforcement’s ability to investigate and prosecute fraud.  The Fighting Fraud to Protect Taxpayers Act builds on our successful efforts in the last Congress to enact legislation to help the Department of Justice and other agencies fight fraud.  The new bill would enhance existing efforts to investigate fraud, including the scourge of mortgage, foreclosure, financial and health care fraud that has victimized thousands of unsuspecting Americans.  The legislation would fill key statutory gaps to account for modern types of fraud, strengthening computer fraud and identity theft.  To ensure that the funds and personnel are being used most effectively, and that False Claims Act lawsuits aren’t being settled for pennies on the dollar, the bill includes transparency provisions to hold the Justice Department accountable for its actions.

Despite these positive developments, this week also brought news of a potential attempt to gut key fraud-fighting provisions before they’ve had a chance to work.  A member of the House of Representatives might try to reverse recent improvements to the Securities and Exchange Commission’s whistleblower program.

Those of us who appreciate the value of whistleblowers beefed up this agency’s whistleblower office.  We saw firsthand how SEC failures can hurt anyone with a pension plan or money in a retirement fund.  The SEC missed the biggest Ponzi scheme in U.S. history.  Bernie Madoff left more than 20,000 victims as a result.  The SEC inspector general found that SEC employees who received whistleblower complaints either didn’t know the whistleblower program existed or dismissed whistleblowers without examining the information.  This is unacceptable.  The Madoff fraud might have been avoided if the SEC had given whistleblowers a chance.  Undermining whistleblowers would just help to enable the next Bernie Madoff.  There will always be criminals trying to exploit securities for personal gain.  Whistleblowers are one of the best lines of defense.  The False Claims Act is another.   I’ll continue to make sure these tools against fraud are protected for taxpayer benefit.