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Financial Crisis Breeds White Collar Crime

By: Gerri L. Elder

White-collar criminal defense attorneys are gearing up for a busy season (or few) ahead.

Some say that the public fury over the greed on Wall Street and the financial meltdown will prompt an onslaught of indictments. After all, someone has to pay for all of the money, homes and jobs that have been lost, right?

Other criminal defense lawyers say that they are sure that prosecutors will show responsibility in deciding if criminal charges should be brought against white-collar executives, despite public outcry for perceived justice.

The New York Law Journal reported that white-collar criminal lawyers expect that there will be increased scrutiny of the activities of troubled mortgage institutions such as Fannie Mae and Freddie Mac, investment banks such as Lehman Brothers and Bear Stearns, and insurance company AIG.

Before Congress passed the $700 billion bailout bill, federal prosecutors were already busy with investigations of white-collar crimes that may have led to this dire financial predicament that the country is in.

The bailout bill clearly states that federal financial regulatory agencies will have to cooperate with the FBI and other law enforcement agencies that are or will be “;investigating fraud, misrepresentation, and malfeasance with respect to development, advertising, and sale of financial products.”

The Wall Street Journal and Bloomberg News Service reported that U.S. Attorneys in the Eastern and Southern districts of New York and New Jersey are investigating whether Lehman Brothers told investors that its financial condition was sound while its executives knew that bankruptcy was near.

Other news reports have indicated that the FBI has launched a probe into Fannie Mae and Freddie Mac, AIG and Lehman Brothers. Robert Mueller, the Director of the FBI, has advised Congress that investigations of 24 large financial companies are underway.

Two hedge-fund managers who formerly worked for Bear Stearns were indicted in June for allegedly misleading clients about the risks of some investments. Additionally last week, three people pleaded guilty to a multimillion dollar subprime mortgage scheme, bringing the number of defendants convicted in that case to eleven.

Experts say that hundreds of fraud cases are likely to be brought against mortgage brokers, real estate agents and buyers on federal and local levels.

Benton J. Campbell, the U.S. Attorney for the Eastern District of New York, told the New York Law Journal that his office has had a local mortgage fraud task force in place for months. This task force has been working with agencies such as the FBI, the U.S. Postal Inspection Service, the Federal Deposit Insurance Corp., the U.S. Securities and Exchange Commission and the IRS.

Some of the criminal cases expected to be brought include federal law violations such as securities fraud, mail fraud, wire fraud, bank fraud and bankruptcy fraud.

While Campbell acknowledged that public outrage may play a part in the decisions made regarding the resources devoted to these criminal investigations, he says it does not play a part in charging decisions. He says that his office does devote a great deal of time separating issues caused by market activity from those caused by criminal acts.

So, while heads should roll – and they will – there is confidence that prosecutors will act fairly.


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