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PROPOSALS TO FIGHT FRAUD AND 

PROTECT TAXPAYERS 

HEARING 

BEFORE THE

COMMITTEE ON THE JUDICIARY 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED ELEVENTH CONGRESS 

FIRST SESSION 

ON

H.R. 1748, H.R. 1292, H.R. 1667, H.R. 1788, 

H.R. 1779, H.R. 1793, and H.R. 78 

APRIL 1, 2009 

Serial No. 111–51 

Printed for the use of the Committee on the Judiciary 

( 

Available via the World Wide Web: http://judiciary.house.gov 

(II) 

COMMITTEE ON THE JUDICIARY 

JOHN CONYERS, JR., Michigan, Chairman 

HOWARD L. BERMAN, California 

RICK BOUCHER, Virginia 

JERROLD NADLER, New York 

ROBERT C. ‘‘BOBBY’’ SCOTT, Virginia 

MELVIN L. WATT, North Carolina 

ZOE LOFGREN, California 

SHEILA JACKSON LEE, Texas 

MAXINE WATERS, California 

WILLIAM D. DELAHUNT, Massachusetts 

ROBERT WEXLER, Florida 

STEVE COHEN, Tennessee 

HENRY C. ‘‘HANK’’ JOHNSON, JR., 

Georgia 

PEDRO PIERLUISI, Puerto Rico 

LUIS V. GUTIERREZ, Illinois 

BRAD SHERMAN, California 

TAMMY BALDWIN, Wisconsin 

CHARLES A. GONZALEZ, Texas 

ANTHONY D. WEINER, New York 

ADAM B. SCHIFF, California 

LINDA T. SA ́ NCHEZ, California 

DEBBIE WASSERMAN SCHULTZ, Florida 

DANIEL MAFFEI, New York 

[Vacant] 

LAMAR SMITH, Texas 

F. JAMES SENSENBRENNER, JR., 

Wisconsin 

HOWARD COBLE, North Carolina 

ELTON GALLEGLY, California 

BOB GOODLATTE, Virginia 

DANIEL E. LUNGREN, California 

DARRELL E. ISSA, California 

J. RANDY FORBES, Virginia 

STEVE KING, Iowa 

TRENT FRANKS, Arizona 

LOUIE GOHMERT, Texas 

JIM JORDAN, Ohio 

TED POE, Texas 

JASON CHAFFETZ, Utah 

TOM ROONEY, Florida 

GREGG HARPER, Mississippi 

PERRY APELBAUM, Staff Director and Chief Counsel 

SEAN MCLAUGHLIN, Minority Chief of Staff and General Counsel 

(III) 

C O N T E N T S 

APRIL 1, 2009 

Page 

OPENING STATEMENTS 

The Honorable John Conyers, Jr., a Representative in Congress from the 

State of Michigan, and Chairman, Committee on the Judiciary ..................... 1 

The Honorable Lamar Smith, a Representative in Congress from the State 

of Texas, and Ranking Member, Committee on the Judiciary ......................... 2 

The Honorable Robert C. ‘‘Bobby’’ Scott, a Representative in Congress from 

the State of Virginia, and Member, Committee on the Judiciary .................... 7 

The Honorable F. James Sensenbrenner, Jr., a Representative in Congress 

from the State of Wisconsin, and Member, Committee on the Judiciary ........ 8 

The Honorable Daniel E. Lungren, a Representative in Congress from the 

State of California, and Member, Committee on the Judiciary ....................... 9 

The Honorable Darrell E. Issa, a Representative in Congress from the State 

of California, and Member, Committee on the Judiciary ................................. 10 

WITNESSES 

The Honorable Judy Biggert, a Representative in Congress from the State 

of Illinois 

Oral Testimony ..................................................................................................... 10 

Prepared Statement ............................................................................................. 12 

The Honorable Neil Abercrombie, a Representative in Congress from the 

State of Hawaii 

Oral Testimony ..................................................................................................... 13 

Prepared Statement ............................................................................................. 15 

The Honorable Elijah E. Cummings, a Representative in Congress from the 

State of Maryland 

Oral Testimony ..................................................................................................... 16 

Prepared Statement ............................................................................................. 18 

Ms. Rita Glavin, Acting Assistant Attorney General, Criminal Division, Department of Justice 

Oral Testimony ..................................................................................................... 19 

Prepared Statement ............................................................................................. 22 

Mr. John Pistole, Federal Bureau of Investigation 

Oral Testimony ..................................................................................................... 55 

Prepared Statement ............................................................................................. 56 

Mr. Jonathan Mintz, New York City Department of Consumer Affairs 

Oral Testimony ..................................................................................................... 44 

Prepared Statement ............................................................................................. 46 

Mr. Ira J. Rheingold, National Association of Consumer Advocates 

Oral Testimony ..................................................................................................... 55 

Prepared Statement ............................................................................................. 56 

Mr. Barry J. Pollack, National Association of Criminal Defense Lawyers 

Oral Testimony ..................................................................................................... 60 

Prepared Statement ............................................................................................. 62 

Ms. Marcia G. Madsen, Institute of Legal Reform, Chamber of Commerce 

Oral Testimony ..................................................................................................... 70 

Prepared Statement ............................................................................................. 73 

Mr. Joseph E.B. White, Taxpayers Against Fraud 

Oral Testimony ..................................................................................................... 86 

Prepared Statement ............................................................................................. 88 

Page

IV 

LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING 

Prepared Statement of the Honorable John Conyers, Jr., a Representative 

in Congress from the State of Michigan, and Chairman, Committee on 

the Judiciary ......................................................................................................... 2 

APPENDIX 

MATERIAL SUBMITTED FOR THE HEARING RECORD

H.R. 1748 , the ‘‘Fight Fraud Act of 2009’’ ............................................................ 128 

H.R. 1292, ‘‘To amend Title I of the Omnibus Crime Control and Safe Streets 

Act of 1968’’ .......................................................................................................... 136 

H.R. 1667, the ‘‘War Profiteering Prevention Act of 2009’’ .................................. 141 

H.R. 1788 , the ‘‘False Claims Act Corrections Act of 2009’’ ................................ 144 

H.R. 1779, the ‘‘Financial Crimes Resources Act of 2009’’ ................................... 167 

H.R. 1793, the ‘‘Money Laundering Correction Act of 2009’’ ............................... 175 

H.R. 78, the ‘‘Stop Mortgage Fraud Act’’ ............................................................... 177 

(1) 

PROPOSALS TO FIGHT FRAUD AND 

PROTECT TAXPAYERS 

WEDNESDAY, APRIL 1, 2009 

HOUSE OF REPRESENTATIVES, 

COMMITTEE ON THE JUDICIARY, 

Washington, DC. 

The Committee met, pursuant to notice, at 10:09 a.m., in room 

2141, Rayburn House Office Building, the Honorable John Conyers, 

Jr. (Chairman of the Committee) presiding. 

Present: Representatives Conyers, Berman, Scott, Jackson Lee, 

Delahunt, Johnson, Baldwin, Maffei, Smith, Sensenbrenner, Coble, 

Gallegly, Lungren, Issa, King, Franks, Jordan, and Chaffetz. 

Staff present: (Majority) Perry Apelbaum, Staff Director and 

Chief Counsel; Robert Reed, Counsel; Brandon Johns, Staff Assistant; and (Minority) Sean McLaughlin, Chief of Staff and General 

Counsel. 

Mr. CONYERS. Good morning, ladies and gentlemen. Today’s 

hearing concerns itself with how best to fight fraud and protect 

taxpayers. 

We have 7 bills in front of us and 13 different statutes already 

law that deal with the problem of when companies cross the line. 

So what are we trying to do? We are trying to separate in this 

global economic crisis accidents, bad judgment, errors, huge mistakes that have been committed from those strategies, tactics or intentions to cross the line into the criminal code. 

In this multitrillion-dollar meltdown, it is very hard, especially 

with as little regulation and inquiry that has gone on so far, to determine which is which. And so we are here to begin this discussion with the Committee that has this very enormous responsibility. 

And so I am pleased to start this off. I will put the rest of my 

statement in the record. And I will yield to my friend from Texas, 

Mr. Smith, the Ranking Member of this Committee. 

[The prepared statement of Chairman Conyers follows:] 

2 

PREPARED STATEMENT OF THE HONORABLE JOHN CONYERS, JR., A REPRESENTATIVE

IN CONGRESS FROM THE STATE OF MICHIGAN, AND CHAIRMAN, COMMITTEE ON THE

JUDICIARY


JCJ-1.eps
3 


JCJ-2.eps
4 


JCJ-3.eps
5 

Mr. SMITH. Thank you, Mr. Chairman. 

Mr. Chairman, I appreciate your holding this hearing today on 

legislative proposals to address mortgage fraud, securities fraud, 

and other financial crimes. 

Congress cannot prevent all crime, but Congress can ensure that 

tough penalties are in place to punish offenders and deter future 

wrongdoers. And we can provide law enforcement officials and 


JCJ-4.eps
6 

prosecutors with the resources and tools they need to bring criminals to justice. 

In times of crisis, crime often flourishes. Following the 9/11 terrorist attacks and Hurricane Katrina, unscrupulous people chose to 

exploit these tragedies to pad their pockets with funds intended to 

help the victims. 

Bringing to bear the heavy hand of government in too heavy a 

manner can be counterproductive. This could lead to a long-term 

reduction in credit, fewer bidders for government contracts, and 

higher costs for taxpayers. We must strike an appropriate balance 

in advancing anti-fraud legislation. 

Many of the bills on our agenda today strike that balance, 

though I am concerned with one or two others. 

I am pleased to join you, Mr. Chairman, as a sponsor of H.R. 

1948, the Fight Fraud Act of 2009. This legislation amends Federal 

criminal laws to include fraud committed by mortgage-lending 

businesses or other entities that provide mortgage loans. The Fight 

Fraud Act also authorizes additional funds for Federal law enforcement agencies and prosecutors charged with combating these fraud 

schemes. 

I am also pleased to join my colleague from California, Mr. Lungren, as a sponsor of his legislation to address money-laundering, 

and Crime Subcommittee Chairman Scott, as a sponsor of his legislation to support the National White Collar Crime Center. 

I wish to commend the gentlelady from Illinois, Judy Biggert, for 

her legislation to provide additional resources to the FBI for its 

mortgage loan fraud investigations. And I thank Mr. Abercrombie 

for joining us today to speak about his war profiteering legislation, 

which I also support. 

Unfortunately, in addition to these bills that will help the government’s effort to fight fraud, we are also considering the False 

Claims Corrections Act as part of the Committee’s effort at addressing fraud. No one doubts the tremendous importance the 

False Claims Act has played in combating fraud in federally funded 

programs. 

Since 1986, when it was last amended, the Federal Government 

has recovered over $21 billion under the False Claims Act. However, as the act’s success demonstrates, it is not in need of the substantial overhaul that the False Claims Act Corrections Act proposes. 

As currently drafted, this bill does not properly strike the balance between providing the government the tools it needs to fight 

fraud and ensuring that innocent recipients of Federal funds are 

not hauled into court to defend against lawsuits based on an overly 

broad law. 

I suspect that the provisions of this legislation will subject nonfraudulent conduct of too many organizations, including hospitals, 

universities, and non-profits to costly False Claims Act litigation, 

while at the same time taking away defenses against frivolous 

cases. 

Every Member of this Committee undoubtedly is concerned with 

combating fraudulent claims against the Federal Government. If 

there is identifiable fraud against the government that the False 

Claims Act is currently unable to address, we should amend the 

7 

law to close the gaps, but I believe that, as currently drafted, the 

False Claims Corrections Act does go too far. In our haste to fix 

a few problems, we must be careful not to create new ones. 

Thank you, Mr. Chairman. I will yield back. 

Mr. CONYERS. The Chairman of the Subcommittee on Crime, 

Bobby Scott of Virginia? 

Mr. SCOTT. Thank you, Mr. Chairman, for holding this hearing 

on fighting fraud and protecting taxpayers. 

As we explore ways to hold accountable unscrupulous mortgage 

brokers, Wall Street executives, government contractors, I hope 

this hearing will give us more insight on what is being done and 

particularly what is needed in the way of resources to investigate 

those suspected of serious crimes of fraud against the taxpayers. 

The underpinnings of the financial crisis began as banks and private mortgage companies relaxed their standards for loans, approving riskier mortgages with less scrutiny. This created an environment that some took as an invitation to fraud. 

In the last 3 years alone, the number of criminal mortgage fraud 

investigations opened by the FBI has more than doubled. The FBI 

has previously testified that it currently has more than 2,000 mortgage fraud investigations open, but only 250 agents specifically assigned to those cases. 

I understand that, for the savings and loan debacle a few years 

ago, we had over 1,000 agents assigned to those cases. The amount 

of finances associated with this problem is approximately three 

times the size of the problem with the savings and loan debacle. 

So I support more resources for the Department of Justice to assist the FBI and the States in enforcing the fraud laws to recover 

the billions lost. 

I am not at this point persuaded that we need new criminal laws 

in this area. Many in this industry knew they were dealing with 

worthless paper. They even had names for the paper like ‘‘NINJA 

loans.’’ That is ‘‘no income, no job or assets’’ loans. And they were 

laughing as they put these things together. 

These loans were then passed off as AAA assets. And when 

somebody sells the garbage as AAA assets, somebody along the way 

has committed common law fraud. To suggest that we need new 

criminal laws may suggest that the behavior that got us into this 

mess was not already criminal. 

And, furthermore, new laws and penalties could not be applied 

retroactively and therefore would not apply to those who committed 

crimes that has got us in the mess we are in today. 

I believe that Federal mail and wire fraud statutes should be sufficient to address the problem on the Federal level. Penalties associated with these statues are substantial. Mail and wire fraud violations carry a maximum penalty of 20 years, and any mail or wire 

fraud that affects a financial institution increases the maximum 

sentence to 30 years. 

It is not just mail and wire fraud that is at the disposal of Federal prosecutors. The FBI has already identified nine applicable 

Federal criminal statutes which may be charged in connection with 

mortgage fraud. 

And in addition to the Federal criminal law, these financial 

crimes can be also prosecuted by State and local law enforcement 

8 

officials under aggressive and very punitive State criminal laws, as 

well. 

So, Mr. Chairman, what we need to do is provide more resources 

to law enforcement to prosecute the fraud, whether it is consumer 

I.D. theft, contracting fraud in Iraq, or mortgage fraud that affects 

us all today. 

In this regard, I have introduced H.R. 1779, the Financial 

Crimes Resources Act, that provides an authorization for additional 

funding to various government agencies responsible for enforcing financial fraud and identify theft laws. For example, the bill authorizes $100 million to the FBI for fiscal years 2010 through 2012 and 

$50 million to U.S. attorneys’ offices to investigate and prosecute 

identify theft, financial fraud, financial crimes, and other fraud. 

The bill also provides resources to cover the costs associated with 

providing Federal defense services for these fraud cases. More importantly, the bill addresses the lack of funding at the State level. 

We need to provide adequate resources to State authorities to battle fraud, and we need to ensure that Federal authorities are coordinating with their State counterparts to ensure an effective approach. H.R. 1779 aims that achieving this task by allocating $250 million at the State and local level to attack the low-hanging fruit of 

identity theft and predatory lending practices that Federal prosecutors fail to go after today. 

And, Mr. Chairman, I think it is appropriate to note that, if we 

spend this money on prosecution today, it will not only have a deterrent effect, but there is significant potential for fines and forfeiture that will offset most of the cost of prosecution. 

I am supportive of other bills that have been introduced to provide more resources to combat fraud. This includes H.R. 1292, a 

bill that introduced with you, Mr. Chairman, and the Ranking 

Member of the full Committee, which would authorize funds for 

States to work with the information-sharing and training programs, such as the National White Collar Crime Center. 

The center has over 30 years of experience, provides a nationwide support network for State and local enforcement agencies involved in prevention, investigation and prosecution of economic, 

high-tech, and terrorism-related crime. 

In addition, both the Chairman’s Fight Fraud Act and the bill introduced by the gentlelady from Illinois, Mrs. Biggert, the Stop 

Mortgage Fraud Act, contained provisions allowing for additional 

Federal resources to combat fraud, and I support these provisions, 

as well. 

Now, Mr. Chairman, I look forward to hearing from our witnesses on the legislative approach that we are going to take in 

dealing with the mortgage fraud and other financial fraud, and 

look forward to their testimony and suggestions on what we need 

to do. 

Thank you, and I yield back. 

Mr. CONYERS. Former Chairman of Judiciary Committee for 6 

years, Jim Sensenbrenner. 

Mr. SENSENBRENNER. Thank you very much, Mr. Chairman. 

The False Claims Act is the principal tool of law enforcement to 

combat fraud against Federal programs. Originally passed at the 

9 

behest of President Lincoln during the Civil War for combat fraud 

against the Union Army, it has been amended several times, since 

then the most recent change in 1986. 

Under the act, private parties or whistleblowers may bring a civil 

qui tam action for violations of the act for themselves and the U.S. 

government. The government has the primary responsibility for 

prosecuting the action when it opts to proceed with the matter. Any 

damage awards may be trebled and are apportioned among the 

whistleblower and the Treasury. 

I am sure no one here would argue that the False Claims Act has 

been anything but successful for the Federal Government. In the 

past 20-plus years, more than $20 billion in settlements and judgments have been achieved. A study found that the Federal Government is bringing back $15 for every dollar it spends pursuing FCA 

cases. 

Although the False Claims Act has been successful, there is always room for improvement. Several Federal courts have applied 

and interpreted provisions of the FCA in ways that have substantially weakened the law. For example, the False Claims Act Correction Act closes the loopholes that permit fraudsters from stealing 

with impunity and from allowing the government to fully recover 

stolen funds. 

Last year in Allison Engine, the courts stressed its hands were 

tied when it held that the Justice Department could only prosecute 

those who steal government funds from the government itself. 

With the U.S. government relying on private contractors to disburse funds for everything from our Medicare prescription drug 

program to our war efforts in Iraq, billions of Federal dollars are 

now in jeopardy. The bailouts that Congress is approving left and 

right, without the proper transparency or accountability, only adds 

to the government funds in jeopardy from the fraudsters. 

It is my hope that the House passes the proposed amendments 

this year and removes the debilitating qualification that fraud perpetrators use to hide behind judicially created qualifications and 

evade liability. 

I yield back the balance of my time. 

Mr. CONYERS. Mr. Lungren or Mr. Issa, are you so inclined? 

Mr. Lungren? 

Mr. LUNGREN. Thank you very much, Mr. Chairman. 

As one who has supported the False Claims Act amendments in 

the past and voted basically for the restoration of this law or the 

effective restoration of this law during the Reagan administration, 

I might just mention that this does have a Republican heritage to 

it. 

It was asked for in its concept by Abraham Lincoln. The Congress passed it. It was signed by Abraham Lincoln. It was effective, 

fell into disuse for a period after World War II. It was not until 

the 1980’s when the Reagan administration asked it be resurrected 

in an effective mode that we passed it out of this Committee. 

It was on the floor. It was passed in the House and the Senate, 

signed by President Reagan. Because of some court decisions which 

basically say, if you are not the direct contractor, you are a subcontractor, we cannot go after this, we need this change. 

10 

It also clarifies some things, streamlines some procedures both 

for dismissal and for people bringing this forward. And for those 

who would suggest that this is not the place for private action, I 

would just suggest that the gentleman from Wisconsin’s statement 

that the Federal Government manages to recover $15 for every dollar it expends suggests that this is a very effective means by which 

we ride herd on those who would defraud our country. 

This goes to the question of war profiteers. It also goes to the 

question of those who would receive the benefit of the humongous 

stimulus package that we have voted and other spending that appears to be on the horizon. 

I thank the Chairman for the time. 

Mr. CONYERS. Darrell Issa? 

Mr. ISSA. I thank the Chairman for holding this hearing, and I 

look forward to voting for most, if not all, of these bills. 

I do have some concern with the modifications in the False 

Claims Act, somewhat differently than my colleague. Although I 

appreciate the Republican nature of this, I believe that the inherent nature between a contractor and their subcontractors is an important one where, if the Federal Government using third-party 

specialists to sue receives money, in a sense, for the government, 

that is fine. 

One of the challenges is that it ultimately runs up the cost for 

the general contractor. So although I accept the fact that whistleblowers through my Committee next door are essential, I am not 

sure that the bill as proposed really brings about the kind of costbenefit that it could. 

In a nutshell, it doesn’t cost that much to get whistleblowers to 

blow the whistle on subcontractors either to the government to 

take action or, more properly, to the government to inform the general contractors so the general contractor can find better subcontractors and save the government more money overall. 

But I do look forward to the hearing today and yield back. 

Mr. CONYERS. Steve King? Okay. 

Trent Franks? Okay. 

Ladies and gentlemen, we are pleased to receive these comments 

of our Members who are here. Judy Biggert is a lawyer from Illinois, a Member of three Committees, Financial Services, Education 

and Labor, Science and Technology, has worked with this Committee in helping us set up discussions with—informal discussions 

with members of the Supreme Court over the years. 

I am happy to have her with us. And we have your statements 

all that are in the record and allow you to proceed at this time. 

TESTIMONY OF THE HONORABLE JUDY BIGGERT, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF ILLINOIS 

Mrs. BIGGERT. Thank you very much, Mr. Chairman and thank 

you and the Ranking Member, Smith, and the Members of the 

Committee for extending to me the opportunity to join you today. 

Given your agenda, I will be brief. 

Some years ago, the Chicago Tribune published a series that revealed that gangs in the Chicago area increasingly were turning to 

mortgage fraud. They found it easier and more lucrative than sellVerDate Aug 31 2005 15:29 Jan 28, 2010 Jkt 000000 PO 00000 Frm 00014 Fmt 6633 Sfmt 6601 H:\WORK\FULL\040109\48438.000 HJUD1 PsN: 48438
11 

ing drugs, believe it or not. But it turns out that the gangs were 

not alone. Everyone, it seems, was in on the act. 

Just last week, the U.S. attorney in Chicago, Patrick Fitzgerald, 

brought mortgage fraud indictments against two dozen players. 

They are brokers, accountants, loan officials, and processors, and 

attorneys. 

Mortgage fraud comes in all shapes and sizes. Scam artists inflate appraisals, flip properties, and lie about information, including income and identity, on loan applications. Some used the identity of deceased people to obtain mortgages, and other desperate 

thieves bilked out of their homes and home equity the most vulnerable homeowners and seniors in dire financial straits. 

Let’s face it: This is just the tip of the iceberg. And we in Congress, as we work to get the economy back on track and credit flowing again, we have to address what was at the root of the mortgage 

meltdown in the first place, and that is mortgage fraud. 

Mortgage fraud continues to be on the rise in record numbers. 

The FBI has reported that, in 5 years, its mortgage fraud caseload 

increased by 237 percent and investigations more than doubled in 

3 years. 

During a 12-month period ending in 2008, mortgage fraud reports increased by 44 percent, reaching over 63,000 reports, with 

predictions of up to $25 billion in losses. On refinanced FHA loans, 

defaults have more than quadrupled. 

For the fifth year in a row, my State of Illinois secured a spot 

on the Mortgage Asset Research Institute’s top 10 list of States 

with the most severe and prevalent incidents of mortgage fraud. In 

2009, the mortgage fraud case report, issued last week, Illinois 

ranked third in the Nation, behind Rhode Island and Florida. 

As a former real estate attorney and Member of the House Committee on Financial Services, I have seen firsthand the devastating 

effects of mortgage fraud. It has plagued our financial system and 

economy. 

Most tragically, it has cost millions of American families their 

homes and required taxpayers to commit trillions of dollars to prop 

up the financial industry. It is just not fair to the good actors in 

the industry and the 90 percent of homeowners who are paying 

their mortgages on time. 

That is why I was pleased to join you, Mr. Chairman and Ranking Member Smith, in introducing H.R. 1748, the Fight Fraud Act, 

and I introduced H.R. 78, the Stop Mortgage Fraud Act. I look forward to working with you and the Members of this Committee on 

these important bills. 

Last Congress, the House three times passed in some form my 

bill, the Stop Mortgage Fraud Act, only to see it removed or ignored by the Senate. But I haven’t given up, and I won’t give up. 

This Congress, I reintroduced the Stop Mortgage Fraud Act to 

provide additional funds to the FBI and the Department of Justice 

to investigate and prosecute mortgage fraud. 

By bolstering Federal law enforcement’s efforts, Congress can 

help to inject certainty and fairness into the mortgage system to restore investor, homebuyer and public confidence in the American 

dream and our financial system. 

12 

As we work to modernize financial laws and regulations, it is our 

duty to supply Federal law enforcement with the tools and resources it needs to rapidly tackle fraud, particularly mortgage 

fraud. Fighting fraud must be a central role in solving the underlying problems that have undermined the economic recovery. 

With that, I respectfully request that you support H.R. 78, and 

I offer my continued commitment to improve the bill and move it 

through the legislative process. 

Thank you again for your time and dedication to this matter. 

[The prepared statement of Mrs. Biggert follows:] 

PREPARED STATEMENT OF THE HONORABLE JUDY BIGGERT, 

A REPRESENTATIVE IN CONGRESS FROM THE STATE OF ILLINOIS

Chairman Conyers and Ranking Member Smith: thank you for extending to me 

the opportunity to join you today. Given your agenda, I’ll be brief. 

Some years ago, the Chicago Tribune published a series that revealed that gangs 

in the Chicago area increasingly were turning to mortgage fraud. They found it easier and more lucrative than selling drugs. It turns out the gangs were not alone; everyone, it seems, was in on the act. 

Just last week, the U.S. Attorney in Chicago, Patrick Fitzgerald, brought mortgage fraud indictments against two dozen players. They are brokers, accountants, 

loan officers and processors, and attorneys. 

Mortgage fraud comes in all shapes and sizes. Scam artists inflate appraisals, flip 

properties, and lie about information, including income and identity, on loan applications. Some used the identity of deceased people to obtain mortgages. And other 

desperate thieves bilked out of their homes and home equity the most vulnerable 

homeowners and seniors in dire financial straits. 

Let’s face it: this is just the tip of the iceberg. And as we in Congress work to 

get the economy back on track and credit flowing again, we have to address what 

was at the root of the mortgage melt-down in the first place and that is mortgage 

fraud. 

Mortgage fraud continues to rise in record numbers. The FBI has reported that 

in 5 years, its mortgage fraud caseload increased by 237 percent, and investigations 

more than doubled in three years. During a 12-month period ending in 2008, mortgage fraud reports increased by 44 percent—reaching over 63,000 reports—with predictions of up to $25 billion in losses. On refinanced FHA loans, defaults have more 

than quadrupled. 

For the 5th year in a row, Illinois secured a spot on the Mortgage Asset Research 

Institute’s (MARI) top ten list of states with the most severe and prevalent incidents 

of mortgage fraud. In MARI’s 2009 Mortgage Fraud Case Report—issued last week, 

Illinois ranked third in the nation, behind Rhode Island and Florida. 

As a former real estate attorney and member of the House Committee on Financial Services, I’ve seen first-hand the devastating effects of mortgage fraud. It has 

plagued our financial system and economy. Most tragically, it has cost millions of 

American families their homes and required taxpayers to commit trillions of their 

hard-earned dollars to prop-up the financial industry. It’s just not fair to the good 

actors in the industry and the 90 percent of homeowners who are paying their mortgage on time. 

That’s why I was pleased to join with you, Chairman Conyers and Ranking Member Smith, in introducing H.R. 1748, the ‘‘Fight Fraud Act,’’ and I introduced H.R. 

78, the ‘‘Stop Mortgage Fraud Act.’’ I look forward to working with you and Members of this Committee on these important bills. 

Last Congress, the House three times passed—in some form—my bill, the Stop 

Mortgage Fraud Act, only to see it removed or ignored by the Senate. 

But I haven’t given up, and I won’t give up. This Congress, I reintroduced the 

Stop Mortgage Fraud Act, now H.R. 78, to provide additional funds to the FBI and 

Department of Justice to investigate and prosecute mortgage fraud. 

By bolstering federal law enforcement’s efforts, Congress can help to inject certainty and fairness into the mortgage system—to restore investor, homebuyer, and 

public confidence in the American Dream and our financial system. As we work to 

modernize financial laws and regulations, it’s also our duty to supply federal law 

enforcement with the tools and resources it needs to rapidly tackle fraud, particularly mortgage fraud. Fighting fraud must play a central role in solving the underlying problems that have undermined economic recovery. 

13 

With that, I respectfully request that you support H.R. 78, the Stop Mortgage 

Fraud Act. I offer my continued commitment to improve the bill and move it 

through the legislative process. Thank you, again, for your time and dedication to 

this matter. 

Mr. CONYERS. Neil Abercrombie of Hawaii is a senior athlete, a 

jazz historian, and an unlicensed lawyer. So we are particularly 

happy to have him before us. 

Welcome, Neil. 

TESTIMONY OF THE HONORABLE NEIL ABERCROMBIE, A 

REPRESENTATIVE IN CONGRESS FROM THE STATE OF HAWAII 

Mr. ABERCROMBIE. Ah, there we are. 

Thank you very much, Mr. Chairman. Mahalo nui loa to you, and 

aloha to you and Mr. Smith and all the Members. Thank you very 

much for the opportunity to be with you. 

Mr. Chairman, before I begin, I want to express to you what I 

know is a shared feeling, I am sure by all the Members and the 

staff, that you will be losing Mr. Luis de Baca to the State Department, but I want to say that the Nation is all the more gaining 

from it and the world. 

He will be ambassador-at-large in the State Department in the 

area of trafficking in persons, particularly women and girls, 

throughout the world who are now suffering oppression, will find 

a great champion in Mr. de Baca. And I commend you and the 

Committee for having the foresight to have him with you. And I 

know we wish him all a bon voyage in his new role. 

Mr. Chairman and Members, I am very grateful to the Committee your hearing on H.R. 1667, and I want to thank Mr. Smith 

for his mentioning it in his remarks. This is a bill I believe that 

does not have an ideological equation or philosophical equation, a 

partisan equation, but one which is particularly American, going 

back, as was indicated by Mr. Lungren and others, something 

which the Members of Congress have had a shared obligation and 

responsibility for and about for decades. 

The War Profiteering Prevention Act of 2009 and other legislation which will begin to hold companies that accept and spend the 

public’s money more accountable to the public. 

Mr. Chairman, as you know, this bill is part of a larger package 

of legislation intended to deter waste and abuse of public funds. It 

is absolutely essential to strengthen Federal law so that privatesector contractors who enter agreements with the government to 

provide goods and services will know that the misuse of public 

funds is a crime and that violators will be prosecuted and punished. 

It is also absolutely essential to strengthen Federal law so that 

the public knows that such behavior will no longer be tolerated. 

It is unfortunate that a relatively few American companies have 

wreaked complete havoc on our country’s economy and provoked 

national outrage with their singular focus on profits at the expense 

of market stability, the long-term benefit of their customers, and 

any sense of business ethic. 

But it didn’t just happen last year or just on Wall Street or just 

in our domestic housing and financial markets. The same corrupt 

14 

atmosphere followed our military forces overseas and is the particular object of my bill. 

The last Administration privatized logistical support for combat 

and reconstruction operations in Iraq and Afghanistan to an extent 

unprecedented in our history. 

Wars have always been huge and highly profitable business, but 

never have we seen the pursuit of profit practiced with more cavalier disregard for the health and safety of our troops, the ultimate 

success of our reconstruction efforts, or the continuing support of 

the American public. 

In fact, some of our largest contractors have acted as if it was 

open season on the United States taxpayer. At least 10 companies 

eventually have paid more than $300 million in penalties to resolve 

allegations of bid-rigging, fraud, gross overcharging, delivery of 

faulty military parts, and environmental damage in Iraq alone. 

Even more tragically, some of our soldiers have become casualties of shoddy work, simply because U.S. law has not fully brought 

these firms to account. There have been 16 reported deaths of 

American soldiers and 2 civilians, not from combat, but from electrocution, as a result of shoddy work. 

Mr. Chairman, I wanted to add parenthetically that I am well 

aware of some of the commentary made about existing law with regard to fraud and misuse and abuse of public funds. 

Our difficulty here and the reason for this bill appearing before 

you is there is now some question as to the legal reach of these 

laws outside the Nation in warzones and combat zones, such as in 

Iraq and Afghanistan, and that is the object of the bill, not to reiterate what is already on the books, but rather to see to it that no 

legal obstacles might exist to be able to bring such perpetrators account. 

The United States has spent more than $50 billion to hire private contractors in Iraq to provide food, water, gasoline, and other 

supplies, guard bases, drive trucks, and many other activities in 

support of our troops or for reconstruction itself. 

Today, with an additional 21,000 troops planned for deployment 

to Afghanistan, along with billions of reconstruction dollars, contract accountability is an urgent need. 

Cleaning up this mess and preventing its recurrence has been 

hampered by the fact that anti-fraud laws that can protect against 

the waste or theft of U.S. tax dollars in the United States are not 

as clearly applicable overseas. There has been and is ambiguity in 

legal jurisdiction. 

An abundance of well-documented cases of contract fraud and 

abuse led to the introduction of the War Profiteering Prevention 

Act in 2007, to that bill’s markup and hearing before this Committee, and to its passage in the full House in October 2007 by an 

overwhelming vote of 375-3. 

I am hoping that the three will re-read this bill and that we can 

prevail upon them to reconsider. 

However, the Bush Administration, through its testimony 

against the bill before your Committee and on the floor of the 

House, viewed this legislation as an example of burdensome regulation over the free enterprise system. As a result, action in the Senate was blocked. 

15 

And as a result, we have worked the bill over in such a way as 

we hope and believe will meet the objections that existed previously. 

That bill was H.R. 400, has now been reintroduced in new form, 

which, as I say, I hope will address such questions as existed in 

2007, introduced in the 111th Congress as H.R. 1667, which received, as I said, the favorable commentary of Ranking Member 

Smith. 

The War Profiteering Prevention Act of 2009, that is before you 

today. This measure is very brief and very direct. It defines contract fraud and specifies who will be covered by the law and where 

it will be in force. It does not have maybe some the general implications that found some objection previously. 

It establishes jurisdiction very clearly for the enforcement of the 

law and the prosecution under it. And it specifies the penalties for 

violation of the law in fines and possible imprisonment. 

It is profoundly distressing that such laws are necessary, but this 

bill is critical to our national security interests, both for the survival of our own economy and accountability to the taxpayer and 

the successful reconstruction in foreign nations gripped by extremism. 

We have seen what can happen without proper government oversight. We would be derelict in our responsibility to the public we 

serve if we did not take every step available to us to discourage 

such behavior in the future and punish those who violate the public 

trust. 

Therefore, Mr. Chairman and Mr. Smith, I appreciate today’s 

hearing, certainly, and I appreciate the fact that you are having a 

hearing on the wider problems of fraud and corruption. 

And I certainly look forward to this Committee’s markup and 

other pieces of reform legislation and their full consideration by the 

House and will do all I can to aid and assist you, should anyone 

still have any questions after we have gone through the House— 

after the House has worked its will. 

Thank you very much, Mr. Chairman. Mahalo nui loa. 

[The prepared statement of Mr. Abercrombie follows:] 

PREPARED STATEMENT OF THE HONORABLE NEIL ABERCROMBIE, 

A REPRESENTATIVE IN CONGRESS FROM THE STATE OF HAWAII

Chairman Conyers and Members of the Judiciary Committee: 

I am grateful to the Committee for today’s hearing on H.R. 1667, the War Profiteering Prevention Act of 2009, and other legislation which will begin to hold companies that accept and spend the public’s money accountable to the public. I appreciate 

the opportunity to address the Committee on this matter. 

Mr. Chairman, as you know, this bill is part of a larger package of legislation intended to deter the waste and abuse of public funds. It is absolutely essential to 

strengthen federal law so that private sector contractors who enter agreements with 

the government to provide goods and services will know that the misuse of public 

funds is a crime, and that violators will prosecuted and punished. It is also absolutely essential to strengthen federal law so the public knows that such behavior 

will no longer be tolerated. 

It is unfortunate that a relative few American companies have wreaked complete 

havoc on our country’s economy and provoked national outrage with their singular 

focus on profits at the expense of market stability, the long-term benefit of their customers and any sense of business ethic. 

But it didn’t just happen last year, or just on Wall Street, or just in our domestic 

housing and financial markets. The same corrupt atmosphere followed our military 

forces overseas. The last Administration privatized logistical support for combat and 

16 

reconstruction operations in Iraq and Afghanistan to an extent unprecedented in 

our history. 

Wars have always been huge and highly profitable business, but never have we 

seen the pursuit of profit practiced with more cavalier disregard for the health and 

safety of our troops, the ultimate success of our reconstruction efforts or the continuing support the American public. In fact, some of our largest contactors have 

acted as if it was open season on the U.S. taxpayer. 

At least ten companies eventually paid more than $300 million in penalties to resolve allegations of bid rigging, fraud, gross overcharging, delivery of faulty military 

parts and environmental damage in Iraq. 

Even more tragically, some of our soldiers have become casualties of shoddy work, 

simply because U.S. law has not fully brought these firms to account. There have 

been 16 reported deaths of American soldiers and 2 civilians, not from combat, but 

from electrocution. 

The U.S. has spent more than $50 billion to hire private contractors in Iraq to 

provide food, water, gasoline and other supplies, guard bases, drive trucks and 

many other activities in support of our troops and for reconstruction. Today, with 

an additional 21,000 troops planned for deployment to Afghanistan along with billions of reconstruction dollars, contractor accountability is an urgent need. 

Cleaning up this mess and preventing its recurrence has been hampered by the 

fact that anti-fraud laws that can protect against the waste or theft of U.S. tax dollars in the United States are not as clearly applicable overseas. There has been ambiguity in legal jurisdiction. 

An abundance of well-documented cases of contract fraud and abuse led to the introduction of the War Profiteering Prevention Act in 2007, to that bill’s mark-up and 

hearing before this committee, and to its passage by the full House in October 2007 

by a vote of 375–3. 

However, the Bush Administration, through its testimony against the bill before 

your committee and on the floor of the House, viewed this legislation as an example 

of burdensome regulation over the free enterprise system. As a result, action in the 

Senate was blocked. 

That bill—H.R. 400—has now been reintroduced in the 111th Congress as H.R. 

1667, the War Profiteering Prevention Act of 2009, and it is before you today. 

The measure is very brief and very direct. It defines contract fraud; it specifies 

who will be covered by the law and where it will be in force; it establishes jurisdiction for the enforcement of the law and prosecution under it; and it specifies the 

penalties for violation of the law, in fines and possible imprisonment. 

It is profoundly distressing that such laws are necessary, but this bill is critical 

to our national security interests; both for the survival of our own economy and accountability to the taxpayer, and the successful reconstruction of foreign nations 

gripped by extremism. We have seen what can happen without proper government 

oversight. We would be derelict in our responsibility to the public we serve if we 

did not take every step available to us to discourage such behavior in the future, 

and to punish those who violate the public trust. 

Mr. Chairman, I appreciate today’s House Judiciary Committee hearing on HR 

1667, the War Profiteering Prevention Act of 2009, and on the wider problems of 

fraud and corruption. I look forward to the Committee’s mark-up of this and other 

pieces of reform legislation, and their consideration by the full House. 

I am grateful for the opportunity to testify and will do anything I can to assist 

the Committee in its deliberations. 

Mr. CONYERS. Elijah Cummings is the past Chairman of the Congressional Black Caucus, Member of the Transportation Committee, as well as the Armed Services Committee. 

Welcome this morning, Elijah. 

TESTIMONY OF THE HONORABLE ELIJAH E. CUMMINGS, A 

REPRESENTATIVE IN CONGRESS FROM THE STATE OF 

MARYLAND 

Mr. CUMMINGS. Thank you very much. Thank you very much, 

Mr. Chairman. I am also a Member of the Government Reform 

Committee also, where we have spent a lot of time looking at fraud 

and a lot of the fraud that Mr. Abercrombie just talked about withVerDate Aug 31 2005 15:29 Jan 28, 2010 Jkt 000000 PO 00000 Frm 00020 Fmt 6633 Sfmt 6601 H:\WORK\FULL\040109\48438.000 HJUD1 PsN: 48438
17 

in the military. And, of course, looking at AIG and what is going 

on right now with regard to these TARP funds. 

Chairman Conyers, I want to thank you and Mr. Smith for inviting us today. And I commend both of you and this entire Committee for your tireless efforts and your ongoing efforts to protect 

consumers and prevent fraud, and I also appreciate the work of 

this entire Committee in that regard. 

I have worked closely with the administration of Governor Martin O’Malley in my home State of Maryland to make my constituents aware of the consumer protections available to them, and I am 

pleased to be here. 

From the instant the decision was made to inject taxpayer dollars into the private capital markets, I have beaten a drum for the 

rights of our Nation’s involuntary investors. 

From for-profit loan-modification firms in the housing sector to 

corporate bonuses and retention payments on Wall Street, we have 

seen too many examples of our hard-working constituents getting 

taken advantage of at a time when many are very—are in desperate straits themselves. 

At the State level, the Maryland General Assembly has passed 

the Maryland Mortgage Fraud Act, explicitly making mortgage 

fraud a specific crime, as well as creating an affirmative obligation 

for all mortgage brokers and lenders to report cases of fraud, theft 

or forgery. 

More recently, we have all seen the emergence of the so-called 

foreclosure or loan modification consultants. These scam artists 

charge high upfront fees to vulnerable consumers to supposedly 

help them obtain modifications of their loans. 

In reality, they are charging hard-working people for information 

that is available to them at no cost. Too often, these efforts result 

in both wasted money and wasted time. And that homebuyer is left 

with two bags in each hand, one bag says, ‘‘Zero,’’ and the other 

one says, ‘‘Debt.’’ 

The bills to be considered by the Committee today would provide 

exactly the kind of tools we need to create stronger taxpayer protections. In the case of AIG, all taxpayers have been victimized. 

We have seen a pattern of less-than-full disclosure of AIG’s uses 

of the TARP funds. First, we found out that they were attending 

conferences at lavish resorts, having their manicures, pedicures, 

and massages done at taxpayers’ expense, after getting significant 

bailout money. 

Then we found out that they were issuing bonuses and retention 

payments even within the Financial Products division, whose actions brought AIG down and created the systemic turmoil that 

threatens our entire economy, not only of this country, but of the 

world. 

Mr. Liddy, the head of AIG, and his team at AIG have not convinced me that these bailout funds are always being used in the 

best interests of the taxpayer. And it is simply unacceptable that 

the taxpayers who provided these funds should have any doubts. 

I particularly commend you, Mr. Conyers, and Mr. Smith, Mrs. 

Biggert, Mr. Scott, Mr. Delahunt, and Ms. Jackson Lee for your 

sponsorship of this legislation, but let me say something else. 

18 

As I listen to Mr. Scott and I listen to Mr. Issa and some others, 

I was thinking about, how do you address these issues? And as, 

frankly, I haven’t practiced law for many years, I think there are 

two things, and I think Mr. Scott hit on it very—did a good job of 

pointing it out. 

You know, the question is, it is not just whether you have the 

laws on the books. The question is, is whether law enforcement 

make those laws a priority to prosecute and whether they have the 

resources to do it. 

Now, Mr. Abercrombie makes a good point. There are some loopholes. And we need to fill those loopholes. But we also, Mr. Chairman—and just commentary—we need to make sure that the U.S. 

attorney and our attorneys throughout—and his assistants 

throughout the country and our State folks know that this is a priority of this Congress. 

Now, I get tired of seeing my constituents after they have been 

defrauded and left with nothing. And the sad part about it, as I 

close, is that, you know, I have often said we have one life to live. 

This is no dress rehearsal, and this is that life. 

And it is so sad when I see people like I saw this morning, Mr. 

Chairman, getting up at 5 o’clock in the morning, going out there, 

working their butts off, and now they stand to lose their houses, 

their homes, their savings, and their health care. 

And then they see their tax dollars being used in a way that is 

to me fraudulent. And they also see something else happening: 

They also see that it becomes almost impossible for them to reclaim 

their dream and reclaim their hope. 

So I encourage this Committee to do what I know you are going 

to do. And thank you for being so vigilant. 

[The prepared statement of Mr. Cummings follows:] 

PREPARED STATEMENT OF THE HONORABLE ELIJAH E. CUMMINGS, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF MARYLAND

Thank you, Chairman Conyers, for inviting me to testify today. 

I commend Chairman Conyers and Ranking Member Smith for their tireless leadership of our ongoing efforts to protect consumers and prevent fraud, and I also appreciate the hard work of all Judiciary committee members. 

I have worked closely with the administration of Governor Martin O’Malley in my 

home state of Maryland to make my constituents aware of the consumer protections 

available to them, and I am pleased to be here. 

From the instant the decision was made to inject taxpayer dollars into the private 

capital markets, I have beaten a drum for the rights of our nation’s ‘‘involuntary 

investors.’’ 

From for-profit ‘‘loan modification’’ firms in the housing sector to corporate bonuses and retention payments on Wall Street, we’ve seen too many examples of our 

hard-working constituents getting taken advantage of at a time when many are 

truly desperate. 

At the State level, the Maryland General Assembly has passed the Maryland 

Mortgage Fraud Act, explicitly making mortgage fraud a specific crime, as well as 

creating an affirmative obligation for all mortgage brokers and lenders to report 

cases of fraud, theft, or forgery. 

More recently, we’ve all seen the emergence of these so-called foreclosure or loan 

modification consultants. 

These scam artists charge high up-front fees to vulnerable consumers to supposedly help them obtain modifications of their loans. 

In reality they are charging hard-working people for information that is available 

to them at no cost. Too often, these efforts result in both wasted money and wasted 

time. 

The bills to be considered by the committee today would provide exactly the kind 

of tools we need to create stronger taxpayer protections. 

19 

In the case of AIG, all taxpayers have been victimized. We have seen a pattern 

of less-than-full disclosure of AIG’s uses of the TARP money. 

First, we found out they were attending conferences at lavish resorts. 

Then we found out they were issuing bonuses and retention payments, even within the Financial Products division, whose actions brought AIG down and created the 

systemic turmoil that threatens our entire economy. 

Mr. Liddy and his team at AIG have not convinced me that these bailout funds 

are always being used in the best interests of the taxpayer—and it is simply 

inacceptable that the taxpayers who provided this funding should have any doubts. 

I particularly commend Chairman Conyers, Mr. Smith, Ms. Biggert, Mr. 

Delahunt, and Ms. Jackson Lee for their sponsorship of the Fight Fraud Act of 2009. 

Including the Troubled Assets Relief Program in the definition of ‘‘major fraud 

against the government’’ should help create transparency and increase accountability from the recipients of these taxpayer funds. 

Whether as a, quote, ‘‘involuntary investor’’ or as the holder of an underwater 

mortgage, the American taxpayer shouldn’t have to keep absorbing these blows. 

The Fight Fraud Act and today’s hearing are the counterpunches they need. Mr. 

Chairman, I commend you and the committee again on your efforts to root out fraud 

and abuse. 

Thank you for inviting me today, and with that, I yield back. 

Mr. CONYERS. Well, we are indebted to all three of you and look 

forward to our continued working together on these bills, and laws 

like this, and how we enforce and supply the government with the 

resources to do what you have suggested. 

I thank you all for your attendance this morning. 

We will now call up our second panel of seven witnesses. And we 

are pleased to welcome the president and CEO of the Taxpayers 

Against Fraud, Jeb White; senior law partner Marcia Madsen; another law firm partner, Barry Pollack; the executive director and 

general counsel of the Association of Consumers, Ira Rheingold; the 

New York City commissioner for consumer affairs, Jonathan Mintz; 

the deputy director of the Federal Bureau of Investigation, John 

Pistole; and the acting assistant attorney general for the criminal 

division in the United States Department of Justice, Ms. Rita 

Glavin. 

Ms. Glavin has done some very excellent work. She will be our 

first witness. All the statements will be in the record, so we welcome you to begin. 

TESTIMONY OF RITA GLAVIN, ACTING ASSISTANT ATTORNEY 

GENERAL, CRIMINAL DIVISION, DEPARTMENT OF JUSTICE 

Ms. GLAVIN. As you all know, the Nation’s current economic crisis has had devastating effects on mortgage markets, credit markets, the banking system, and all of our Nation’s citizens. 

And while not all of the current economic ills are the result of 

criminal activity, the financial crisis has laid bare criminal activity, 

such as Ponzi schemes, that may have otherwise gone undetected 

for years. 

The Department of Justice is committed during these difficult 

times to redoubling our efforts to uncover abuses involving financial fraud schemes, mortgage lending and securitization frauds, 

foreclosure rescue scams, government program fraud, bankruptcy 

schemes, and securities and commodities fraud. 

Where there is evidence to criminal wrongdoing, including criminal activity that may have contributed to the current economic crisis or any attempt to criminally profit from the current crisis, the 

20 

department will prosecute the wrongdoers, seek to put them in jail 

when appropriate, and work tirelessly to recover assets and criminally derived proceeds, and strive to make the victims whole. 

Historically, the department has had tremendous success in identifying, investigating and prosecuting massive financial fraud 

schemes. Last year, for example, the department obtained convictions of four executives, including a former AIG executive who engaged in corporate fraud by executing two false reinsurance transactions to conceal a $59 million decrease in the loss reserves of 

AIG. 

Similarly, last year, the department secured the conviction of five 

former executives, including the owner and president of National 

Century Financial Enterprises, one of the largest health care finance companies in the United States, until its 2002 bankruptcy, 

on charges stemming from an investment fraud scheme resulting 

in $2.3 billion in investor losses. 

Last week, the former president of that company was sentenced 

to 30 years in prison, and a co-owner was sentenced to 25 years 

in prison. The defendants were also ordered to pay restitution of 

$2.3 billion and forfeit $1.7 billion. 

In just the last few weeks, the department has secured a guilty 

plea from Bernard Madoff for securities fraud and mail fraud violations. And we filed a criminal complaint against Laura PendergestHolt, the chief investment officer of Stanford Financial, alleging 

that she obstructed an SEC investigation into the activities of 

Stanford Financial. 

The department has approached the current financial problem 

with three primary goals, first, coordination. The department has 

sought to aid in the coordination among law enforcement agencies 

by working with our partner agencies in forming a variety of national and regional working groups. The coordination is important 

to share information and share ideas. 

Second, investigations and prosecutions. As always, the department focuses on those to investigate financial fraud and mortgage 

fraud. When people go to jail, when people incur stiff fines and 

have to pay restitution, we deter similar conduct by others. 

The department has over the last several years aggressively 

prosecuted fraud cases. We have done nationwide sweeps, resulting 

in hundreds of convictions. 

Third, in addition to coordination and investigating, prosecuting 

crimes, we look to fulfill our responsibilities to the victims, looking 

to make them whole, looking to identify them, looking to recover 

assets and provide the restitution to the victims. 

In addition to continue our efforts to prosecute financial crimes, 

like Ponzi schemes, mortgage fraud, securities fraud, the department knows that we have to ensure that the funds that Congress 

has authorized to rejuvenate our economy are used as intended. 

Where these taxpayer funds are used unlawfully and where misrepresentations are made in order to get those funds, we are committed to looking at the matter, investigating and prosecuting 

wrongdoers where we find them. 

Our past experience, including many prosecutions relating to the 

Hurricane Katrina recovery funds and the funds used as part of 

the Iraq reconstruction efforts, show that we know when large inVerDate Aug 31 2005 15:29 Jan 28, 2010 Jkt 000000 PO 00000 Frm 00024 Fmt 6633 Sfmt 6601 H:\WORK\FULL\040109\48438.000 HJUD1 PsN: 48438
21 

vestments of taxpayer money go out over a short period of time, 

people will try and exploit the system and criminally profit. 

And we are aware of that. We are ready for that. And we are already starting to work with our other law enforcement agencies, including the SIGTARP, to prepare for what may come down the 

pike. 

So looking forward, the department believes it has the tools it 

needs to continue to vigorously combat financial fraud. We support 

certain legislative steps that could be used to close existing gaps 

that might exist in the law and strengthen some of the statutes 

that we already use to prosecute these financial fraud crimes. 

I appreciate the Committee’s invitation to be here today, and I 

look forward to your questions. 

[The prepared statement of Ms. Glavin follows:] 

22 

PREPARED STATEMENT OF RITA GLAVIN


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Mr. CONYERS. Deputy Director John Pistole, Federal Bureau of 

Investigation? 


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TESTIMONY OF JOHN PISTOLE, 

FEDERAL BUREAU OF INVESTIGATION 

Mr. PISTOLE. Thank you, Chairman Conyers and Ranking Member Smith, Members of the Committee. It is a pleasure to be here 

today. 

I would like to give you just a very brief overview of the law enforcement challenges facing us and describe the FBI’s current efforts to address the growing economic fraud. 

First, in the area of mortgage fraud, our work focuses on 

schemes that rely on industry insiders, of course, those appraisers, 

accountants, mortgage brokers, and other professionals who override lender controls designed to prevent this type of crime from 

happening. To state the obvious, we have experienced a significant 

increase in mortgage-fraud-related cases since 2005. 

And we expect that upward trend to continue. Also, mortgage 

rescue schemes designed to prey on individuals facing the dramatic 

loss of their homes and who are therefore very vulnerable are of 

great concern to us. And we are now beginning to see the growth 

of this crime problem, as well. 

The FBI is also combating other types of economic crime, from 

securities fraud to health care fraud to frauds and corruption associated with our country’s efforts to rebuild Iraq and Afghanistan, 

as we heard from the prior panel. 

Finally, the numerous Ponzi schemes that we have heard about, 

such as Madoff, and other investment frauds have been uncovered, 

which we are actively pursuing, we are responding in a number of 

specific ways. We have shifted resources and now have additional 

FBI agents and national analysts, as well as intelligence analysts, 

assigned to mortgage fraud and related investigations. 

We have another group of agents and analysts working corporate 

fraud and securities fraud matters. We augment our efforts with 

State and local law enforcement officers assigned to mortgage fraud 

task forces and working groups. 

And we have established at our headquarters a national mortgage fraud to team to coordinate and prioritize our efforts across 

the country with our partners and to provide tools that identify the 

most egregious fraud perpetrators and work even more effectively 

with our counterparts in law enforcement, regulatory, and industry 

leaders. 

For example, last June, we completed the initial phases of what 

we called Operation Malicious Mortgage, involving the arrest of 

more than 400 offenders nationwide believed to be responsible for 

over $1 billion in estimated losses. This initiative has focused on 

three types of mortgage fraud, that of lending, of course, mortgage 

rescue schemes, and mortgage-related bankruptcy schemes. 

And we continue our strong efforts within the international contract corruption task force in which we, with our other Federal 

partners, address fraud and corruption in U.S.-funded Iraq and Afghanistan construction projects. 

In closing, it is clear to us and the FBI and our law enforcement 

partners that more must be done to protect our country and our 

economy from those who tried to enrich themselves through illegal 

financial transactions. We are committed to doing so and very 

grateful for your support. 

36 

Thank you, Mr. Chairman. 

[The prepared statement of Mr. Pistole follows:] 

PREPARED STATEMENT OF JOHN PISTOLE


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Mr. CONYERS. New York City Commissioner for Consumer Affairs Jonathan Mintz, welcome. 

TESTIMONY OF JONATHAN MINTZ, NEW YORK CITY 

DEPARTMENT OF CONSUMER AFFAIRS 

Mr. MINTZ. Good morning. Thank you, Chairman Conyers, Ranking Member Smith, for the opportunity to testify on behalf of New 

York City Mayor Michael Bloomberg. 

Given the urgent nature of these hearings, I will skip the extensive background on my department’s 40-year history of enforcing 

and litigating against deceptive and misleading practices in New 

York City. And I will also forego the in-depth stories about the 

damage that is inflicted on consumers by foreclosure scams. 

My brief testimony will diagnose from an on-the-ground, municipal, anti-fraud perspective why these scams are so virulent and 

suggest practical, immediate Federal outreach and enforcement 

interventions that must occur in the coming days and weeks. 

A combination of enforcement and education is just what is needed to disrupt the tide of foreclosure prevention and loan modification scams sweeping across our cities. The numbers are alarming: 

Nearly 5,000 homes in New York City were auctioned off last year, 

and nearly 14,000 homeowners had lis pendens filings. 

The national foreclosure crisis has created a formidable demand 

for rescue and refinancing. Unfortunately, a shadow industry 

aimed at profiteering from both the enormity of the crisis and the 

Federal resources is moving aggressively to respond to that demand. 

This shadow industry thrives for three reasons all too familiar to 

consumer protection agencies. First, the intense demand for loan 

modifications; second, a captive, vulnerable, and often unsophisticated population; and, third, the lack of a single, trustworthy and 

tamperproof source to which people can be directed for help. 

Many of the same people who were deceived by the marketing 

tactics used for subprime loans—people with limited experience 

with financial services—are the targets now. Adding fuel to this 

fire is that these easy targets can be precisely identified. 

Lis pendens lists are readily available for purchase online. Scam 

artists can access critical information, like servicers and payment 

histories, in order to employ disarming familiarity. 

The public hears daily about the Federal Government’s efforts to 

help distressed mortgage holders, but information is channeled 

through multiple conduits, from every level of government and 

from nonprofit sector partners. It is this diffuse messaging and the 

multiple doorways which facilitates the swindles. 

Loan modifiers pose as messengers from government agencies, 

lenders or services. Advertisements take on official veneer, for example, using FHA seals or including legal citations. 

We believe that there are three feasible steps which can effectively intervene to protect people in foreclosure and get them to the 

right help. 

While so-called loan modifiers are located throughout the country, their targeting and their marketing is local in nature. In New 

York City, the neighborhoods that are most dramatically impacted 

by the foreclosure crisis are papered with flyers offering rescue. 

45 

To combat this flood of marketing, the national response needs 

to be clear and simple in messaging, but local in delivery. Simplifying the conduit to well-trusted and tamperproof 311 or 211 information hotlines is an ideal intervening fix. 

More than 60 cities across the U.S., which cover close to 80 percent of the American population, have these information hotlines. 

These referral systems available 24 hours a day, 7 days a week, 

and in dozens and dozens of languages. Local governments have invested millions of dollars to popularize these free hotlines, and we 

stand ready to utilize them for the present emergency. 

The Federal Government has the unique power to mobilize civil 

leaders and community partners to carry a unified message: Don’t 

talk to anyone about helping you avoid foreclosure unless you got 

to them through 311 or 211. 

Now let’s talk about strengthening enforcement. We applaud the 

Chairman’s proposed Fight Fraud Act and the additional resources 

intended to be directed to Federal law enforcement agencies. 

But given the local nature of these scams and the accompanying 

wealth of local information and leads, these Federal agencies will 

be most effective when they are meaningfully partnering with local 

enforcement and consumer protection agencies who have inspectors 

on the ground. We have the information; we just need to be able 

to get it into the right hands. 

We propose, therefore, the establishment of a national task force, 

which will coordinate this database and information. 

Finally, we propose a Federal ban on fee-for-service mortgage relief advocacy. There is no reason for distressed homeowners to pay 

unqualified, for-profit actors to negotiate with their lenders when 

instead they could work with qualified, not-for-profit HUD counselors. 

Just like banning fee-based debt counseling, as we have in New 

York, Congress has the power to enact a simple ban on fee-for-service foreclosure prevention businesses. Moreover, State and local 

governments must be empowered to enforce such legislation. 

Thank you. 

[The prepared statement of Mr. Mintz follows:] 

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PREPARED STATEMENT OF JONATHAN MINTZ


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Mr. CONYERS. Thank you very much. 

We now have a consumer representative, Ira Rheingold. 


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TESTIMONY OF IRA J. RHEINGOLD, NATIONAL ASSOCIATION 

OF CONSUMER ADVOCATES 

Mr. RHEINGOLD. Good morning, Mr. Chairman. 

And thank you, Ranking Member Smith and Members of this 

Committee. 

I thought I would use my time to talk a little bit about my background, what I have seen over the course of a dozen years, and 

take a look at how, if we are going to stop fraud in this country, 

who we need to really target when we begin to tackle the gigantic 

problem that we have today in terms of our foreclosure crisis and 

the mortgage fraud that permeates our economic system. 

I was a legal services attorney since the mid-1990’s working on 

foreclosure issues in Chicago. From the mid-1990’s through around 

2001, I worked in low-and moderate-income communities in Chicago and worked with others around the country who face the same 

issues. 

And what we saw in those communities was the mortgage fraud 

that we are seeing today across this whole country, in Atlanta, in 

Boston, in Hampton Roads, in California. And what we saw was a 

mortgage system that was system, a mortgage system that was 

broken that attracted people who were committed to committed 

crime. 

The tin men of the 1950’s and 1960’s, the home repair scam artists of the 1970’s and 1980’s became mortgage brokers and got engaged in the mortgage-lending industry. And what we saw in those 

communities were an enormous loss of wealth. 

In poor communities across this country, we have seen a redistribution of wealth that is shocking. Poor communities in my city, 

in other cities have lost enormous wealth, had that wealth stolen 

from them, stolen by Wall Street companies and by big mortgagelenders who built a system that really encouraged fraud. And I 

think that is the important thing that we need to look at. 

When we talk about securitization and the complex mess that allowed these mortgage things to occur, we need to look at what 

those lenders did. In 1997, 1998, I worked with the Chicago attorney general’s office when they pursued a company called FAMCO. 

They were joined by a number of attorneys general pursuing 

FAMCO. 

And the biggest funder of FAMCO was Lehman Brothers. So 

when Lehman Brothers failed last year because they were engaged 

in all sorts of nefarious practices, those of us who had been working on mortgage fraud since the mid-1990’s knew that Lehman 

Brothers was a bad actor. 

In fact, a court in California found them liable for the behavior 

of FAMCO because they knew that mortgage fraud was occurring, 

they encouraged it, they funded it. They did nothing about it because profits were great. Profits were great. 

The mortgage lending industry, the investment banking industry 

made money when loans were closed, and they didn’t care where 

they came from, they didn’t care about who they came from. 

As investigators begin to look at the mortgage problem, when 

they start to talk to mortgage brokers and the scam people who 

they will be charging, what they will hear from them—and I can 

promise you they will hear this—is that, ‘‘When we made a loan 

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that was a no-doc loan that we knew was permeated with fraud, 

we knew what lender to sell it to. We knew that if we went to 

Countrywide, we knew that if we went to Ameriquest, we knew if 

we want to IndyMac or Option One, they would not look.’’ 

They didn’t care, because we had a system that, when those 

mortgage lenders bought those loans, they turned it around, and 

turned them, and chopped them up, and spindled them, and mutated them, and turned them and sold them to investors, and they 

knew credit-rating agencies didn’t care and weren’t going to look at 

it and didn’t do due diligence, and then investors were the same 

victims of the fraud that that homeowner was. 

So if we are going to look at fraud, if we are going to challenge— 

if we are actually going to stop the practices that have led us to 

this economic crisis that we sit in today, then we need to look carefully at investments. We need to look at our banks. We need to look 

at mortgage lending, look at Ameriquest and Countrywide, Angelo 

Mozilo. 

Instead of honoring somebody like Roland Arnall by making him 

the ambassador to the Netherlands, his company caused more 

harm to our Nation’s community than anyone could have imagined. 

We need to look at those companies. We need to look at the investment banks, like that—that are still left. But in Bear Stearns, in 

Lehman Brothers, they enabled the fraud that is occurring today. 

We talk about—so investment banks. We need to look at the 

credit-rating agencies. Where were there? Did they not see that 

these loans were going to fail? Did they not look at all these things 

and rated these things as AAA and sold them to investors as good 

vehicles, that things were going to—that people’s money was going 

to be safe? Did they, in fact, enable the fraud by their bad behavior? 

Finally, when we talk about mortgage rescue scams, and that is 

happening every single day—I talk to consumers across this country every single day. And they are being inundated by claims of 

people who are going to help them solve their foreclosure problem. 

There are scared and desperate people out there. 

We need to go after them, and we need to prosecute those people. 

But we also need to recognize that the reason those people are succeeding, the reason why they have such a successful business 

model is because the mortgage servicing system is broken. 

No normal human being in this country who has a mortgage and 

wants to get it fixed can find who their lender is, who their servicer 

is, contact that person, and actually get a decent loan modification. 

And until we fix the problem of people being able to independently handle their matters and solve those foreclosure problems by 

themselves, the scam artists and the mortgage rescue schemes are 

going to be out there. We can’t stop it until we solve the problem 

of mortgage servicers not being accountable to the American people. 

Thank you. 

[The prepared statement of Mr. Rheingold follows:] 

PREPARED STATEMENT OF IRA J. RHEINGOLD

Mr. Chairman, Ranking Member Smith, and members of the Subcommittee, 

thank you for inviting me to testify before you today about the breakdown of the 

57 

1For a much greater detailed discussion, please see Peterson, Christopher Lewis, ‘‘Predatory 

Structured Finance.’’ Cardozo Law Review, Vol. 28, No. 5, 2007 

American home mortgage market and how we can better protect our nation’s homeowners and communities. 

My name is Ira Rheingold, and I have been a public interest attorney for my entire adult career. I have worked in some of our nation’s poorest urban and rural 

communities and I’ve witnessed the incredible resilience and optimism that mark 

the great strength of our nation’s people. I have also seen the incredible fear and 

despair of Americans faced with the loss of their long-term home and its devastating 

impact on their families and on their communities. 

In the mid-1990’s through 2001, I lived and worked in Chicago, where I ran the 

Legal Assistance Foundation’s Homeownership Preservation Project. During those 

years, I watched (and worked against) the unfair and deceptive practices of all the 

actors in the mortgage industry, that slowly, but inexorably stripped away the 

wealth of my city’s low and moderate income minority communities. Today, I am 

the Executive Director of the National Association of Consumer Advocates (NACA), 

an organization of attorneys and other advocates who represent those very same 

consumers and communities all across America. At NACA, I also manage the Institute for Foreclosure Legal Assistance, a project that provides funding and training 

to non-profit legal organizations that help homeowners negotiate alternatives to 

foreclosure. In my current roles, I speak to and assist our nation’s consumer advocates who, on a daily basis, meet with and represent the consumers victimized by 

predatory and unsound lending practices and see the very real-life consequences of 

an out of control mortgage lending marketplace. What I see from them are the same 

unfair and deceptive practices that I personally witnessed in Chicago, except now, 

those behaviors have moved across all of our nation’s communities. What I hear 

from their clients is the same fear and despair that I heard all too often on the 

streets of Chicago. At today’s hearing, I hope that you will hear these voices through 

me, and that you will begin to see what we all need to do to build a rational, robust 

and well-regulated mortgage market that actually serves the needs and demands of 

consumers and communities across our nation. 

INTRODUCTION

To understand what it has been like to be a consumer attempting to buy their 

first home, a homeowner attempting to refinance their home for necessary home repairs or to help pay for their children’s education or to lower their payment so they 

could remain in their life-long home on a fixed income, we must first understand 

how the mortgage market has been working. The mortgage market of the late 1990s 

and early 21st century, in no way resembled what most of us thought we understood 

about buying a home or getting a loan. I have talked to literally thousands of consumers, who, until recently, believed (or were led to believe) that the mortgage entity that originated their loan, would only profit when they timely made their monthly mortgage payment. While this may have been the case when our parents or even 

our grandparents bought their homes, this has not been the truth for over the past 

dozen years. Instead, because of the growth of securitization as the tool to fund both 

prime and subprime mortgages, with all its confusing layers, multiple actors and 

often perverse incentives, the nature of the consumer-mortgage originator relationship (unbeknownst to the consumer) had fundamentally changed. These changed relationships and backwards incentives have led us to the precipice that we stand at 

today. 

SECURITIZATION AND THE CONSUMER

For my purpose today, I’m going to keep this very simple.1 At its most basic level, 

securitization is a process, which involves the pooling and repackaging of cash-flow 

producing financial assets into securities that are then sold to investors. As 

securitization grew to be the dominant way that mortgage loans were funded, the 

role and purpose of mortgage originators (and all the other actors in the mortgage 

market) fundamentally changed. No longer were mortgage originators, ‘‘lenders’’ 

who expected (or really cared) about mortgage repayments. Instead, these originators became manufacturers of a commodity, the American mortgage borrower. This 

commodity was then sold to the capital markets, which in turn, chopped, spindled 

and mutated this new commodity into something that could be purchased by investors from around the world. 

While advocates of securitization have argued that the process produced additional capital and greater access to homeownership for some consumers, they fail 

to recognize the fundamental shift and potential dangers it created in the consumer 

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marketplace. No longer was the borrower’s best interest (or even their ability to 

repay the loan) part of the mortgage transaction calculation. Instead, the real transaction was between the mortgage originator and the investment bank, which not 

only set the standards for the borrower/product they wanted to buy (and then turn 

around and sell), but also provided the money for the originators’ loans. 

Under these set of circumstances, what American consumers needed was the vigorous enforcement of existing consumer protections as well a new set of consumer 

protections to correspond with the very different mortgage world that had now been 

created. Unfortunately, what the federal government gave us was the exact opposite, not only diminishing its regulation and enforcement of the mortgage marketplace, but providing interference and protection (under the guise of preemption) for 

mortgage market players when states, recognizing the fundamental flaws in the system, attempted to protect their own citizens. 

THE MORTGAGE MARKET, UNFAIRNESS, DECEPTION AND THE CONSUMER

Understanding what originators and all of the actors in the mortgage process 

were attempting to do (creating commodities to sell) when they made a home loan 

helps us understand all the unfair and deceptive practices that have flourished in 

the mortgage marketplace over the last decade. I’d like to talk about some of those 

practices now, and explain why they were not caused by a few rogue actors, but 

were instead a product of the fundamentally flawed marketplace that securitization 

created and the federal government passively permitted to flourish. 

A. The Predatory Pitch 

As the demand for product to sell to Wall Street investment banks grew (ultimately exponentially), the pitch to vulnerable homeowners (and prospective homeowners) became more targeted and more predatory. Armed with financial and personal data and carefully conducted research, mortgage brokers and lenders (and 

their ‘‘bird dogs’’) used TV and radio advertising, mailings, telephone calls, and even 

home visits to reel in consumers who otherwise had no real reason to get a new 

home mortgage. With promises too good to be true (‘‘refinance your home, fix your 

roof and lower your monthly payment’’) consumers were later bait and switched to 

loans far more expensive than they thought they were promised. Because the mortgage ‘‘originators’’ received their full compensation when they manufactured the 

‘‘product/borrower’’ to sell onward and upward, there was little concern whether the 

loan was best for the consumer or even affordable. As many of us knew, and most 

of us have now learned, many of those loans were completely unsustainable. 

B. The Over-Inflated Appraisal 

In a rational world, a consumer would not want to pay (or borrow) more for a 

home than what it was worth. In the securitization created ‘‘bizarro’’ mortgage 

world, an over-inflated house made perfect sense to the parties involved in the 

transaction (except for the unsuspecting consumer, of course, and maybe the ultimate investors left holding the bag). Let’s look at the parties to the transaction. We 

have the mortgage originator (the broker or the lender or sometimes both) whose 

incentive is quite obvious. Simply put, the greater the house price, the larger the 

loan, the greater the fee they will receive from the transaction (the same can be said 

for the investment bank). Sometimes the incentives were a little more complicated. 

Take for instance a homeowner whose existing mortgage is already 100% of the actual value of the home. If the real house value was used, no loan could be made, 

no product could be created. So the house value was increased to meet the loan purchasing parameters (the underwriting guidelines) set by the investment bank and 

the loan gets made and everyone is happy (including the allegedly ‘‘unknowing’’ investment bank who had another product to slice and dice and sell to someone else). 

As for the appraiser who creates the fraudulent value for the home, we’ve seen 

time and again why they go along with this fraud. Simply, if they actually want 

to stay in business and continuing doing appraisals, they’ll create the value the 

mortgage originator wants. What we have left, is a consumer who has a mortgage 

that is too often worth more than the real value of their home. 

C. Yield Spread Premiums and Prepayment Penalties 

Unfortunately (for me), I have been around long enough to hear multiple and 

ever-shifting explanations as to why yield-spread premiums (YSPs) are an acceptable practice and why they are ‘‘good’’ for consumers. I can safely state, that none 

of those arguments are true in the mortgage marketplace that actually exists in our 

country. I do however, fully understand why they work for every mortgage market 

actor except, again—of course—for the consumer. 

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Here’s how it works. Mortgage brokers get paid more if they produce mortgages 

with an interest rate higher than what a borrower qualifies for (that, in short is 

a YSP). Unless a mortgage broker actually lives up too their off-stated (but never 

written) commitment to serve in the best interest of their consumer client, their incentive—a more expensive loan means a bigger paycheck—is clear. This perverse incentive system also plays out with the mortgage lender and investment bank (irrespective of a borrower’s ability to pay) because they too have a loan with a bigger 

interest rate to sell to investors. 

To make matters worse, almost any loan with a YSP is sure to have a prepayment 

penalty. In English, a prepayment penalty is a charge to a consumer who repays 

their loan ‘‘too soon,’’ typically during the first few years of the loan’s existence. 

What makes this product so cynical, and so closely intertwined with a YSP, is that 

the very existence of the YSP means that the consumer has an interest rate that 

is higher than they actually qualify for. Therefore, if the consumer acts rationally 

and shops for a lower interest and enters into a new mortgage, they will be punished with a steep prepayment penalty. 

In all my years talking, interviewing, and representing consumers, I have yet to 

meet that one consumer who actually understood that they were charged a YSP or 

that the YSP led to a higher interest rate than they were otherwise qualified for. 

I simply cannot imagine how this practice is not deceptive or just plain unfair. Yet 

none of our nation’s federal regulators have ever really done anything about it (except to find ways to allow its widespread use). 

D. The Disappearance of Escrow Accounts 

Because the borrower has become the product to be created and sold, mortgage 

originators have become experts at getting borrowers to take out loans that make 

little or no economic sense. A classic and pervasive practice in the mortgage market 

is the ‘‘promise’’ that a new loan will allow the borrower to pay a lower monthly 

mortgage payment. What the borrower is not told is that their new payment does 

not include their taxes and insurance (for escrow), so that their lower payment really is just a mathematical fiction (otherwise known as a lie). While the Federal Reserve now finally appears ready to take some action on this practice, it is ridiculous 

that this blatantly unfair and deceptive practice (which had been standard operating practice in the mortgage marketplace for over a decade), had never been outlawed or prosecuted by federal regulators. 

E. Reckless Underwriting and the Rise of Community Endangering Loan Products 

In place of an efficient market that provides real consumer choice and rewards 

consumers for smart credit decisions and rational aspirations, we have seen, in the 

past few years, a mortgage market that has recklessly created and sold ridiculously 

risky mortgage products that have excessively benefited all of the market players 

at the expense of the American consumer and our nation’s communities. In a rational marketplace these loans made no sense. Looking at them however through the 

lens of our fundamentally flawed and unregulated mortgage marketplace, they unfortunately made perfect sense (at least at the time they were originated). 

In order to meet the product demand of voracious Wall Street investors, originators ignored basic, common-sense underwriting principles in order to boost their 

loan volume. No-doc or ‘‘stated-income’’ loans were great because loan originators 

made more money (it was less work and they could charge borrowers a higher interest rate) and they fed the beast that wanted high-risk products that would produce 

a higher return for investors. Underwriting adjustable rate mortgages only at the 

initial interest rate, without considering how homeowners would be able to pay their 

loans once the payment adjusted upward, was also quite profitable for mortgage 

originators and the investment banks that were fed by them. These fundamentally 

unsustainable loan products, in all their derivations (including 2–28s and option 

ARMs) were destined for failure and we are all now living with the consequences. 

CONCLUSION

The present foreclosure tsunami didn’t have to happen. Many of us saw the current disaster coming, but our voices were ignored. Federal regulators and Congress 

could have chosen to protect consumers, but instead it sat on the sidelines as our 

mortgage market came to a predictable crash. My only hope is that we have all 

learned the right lessons from this current and ongoing crisis, and we move together 

to build a well-regulated mortgage market that meets the needs of all our nation’s 

homeowners. 

60 

Mr. CONYERS. Attorney Barry Pollack is a lead official in the National Association of Criminal Defense Lawyers, works on whitecollar crime issues. 

Welcome. 

TESTIMONY OF BARRY J. POLLACK, NATIONAL ASSOCIATION 

OF CRIMINAL DEFENSE LAWYERS 

Mr. POLLACK. Thank you, Mr. Chairman. And thank you for inviting me to testify on behalf of the National Association of Criminal Defense Lawyers on the important issues before the Committee 

today. 

NACDL is a professional bar association founded in 1958. It has 

12,500 direct members and 80 State, local and international affiliate organizations with 35,000 members, including private criminal 

defense lawyers, public defenders, active-duty U.S. military defense 

counsel, law professors, and judges committing to preserving fairness within the American criminal justice system. 

As this Committee considers the various pieces of legislation before it, we ask it to consider the following. There are presently over 

4,000 offenses that carry criminal penalties in the United States 

code. In addition, there are literally tens of thousands, if not hundreds of thousands, of regulations, Federal regulations that can be 

enforced criminally. 

The Federal arsenal to stop and punish financial fraud in every 

permutation already exists. Federal criminal laws that can be used 

to address criminal conduct in the financial and housing markets 

include among many others mail fraud, wire fraud, major fraud, securities fraud, bank fraud, and conspiracy to defraud. 

Bearing these facts in mind, NACDL opposes a knee-jerk response to the present financial crisis of creating more and more duplicative Federal criminal laws. 

Mr. Chairman, while the National Association of Criminal Defense Lawyers appreciates this Committee’s efforts to make sure 

that our membership is fully and gainfully employed, as Ms. 

Glavin’s comments have ably demonstrated, she already has the 

tools to do just that and has been prosecuting vigorously and meting out very stiff sentences to white-collar criminal offenders. 

Federal criminal laws are rightly reserved for egregious, intentional wrongdoing that falls well outside the mainstream of ordinary business conduct. If large members of honest businesspersons 

took advantage of an unregulated environment in making risky 

and ill-advised, but not illegal decisions, they should not now be 

treated as criminals. 

For those who went beyond that and engaged in intentional 

fraudulent conduct, there are ample criminal laws on the books already that will allow for them to be prosecuted, as they should be. 

Accordingly, NACDL does not oppose the various measures to 

fund the hiring of additional prosecutors, FBI agents, and other 

law enforcement personnel, many of whom have been pulled away 

to investigate and prosecute national security cases, to investigate 

and, where appropriate, prosecute white-collar criminal offenses. 

However, Congress must understand it cannot fund half of the 

equation. Current criminal forfeiture statutes allow for assets to be 

restrained from criminal defendants upon indictment. As a result, 

61 

increasing numbers of defendants in white-collar cases cannot pay 

for their own defense. 

The defense in this case is paid for by taxpayers. This happens 

either through public defenders’ offices or through court appointments under the Criminal Justice Act. 

Federal public defender offices are already overburdened, and 

many lack the resources and the expertise to defend complex whitecollar criminal cases. If we are to expand such prosecutions, we 

must not only fund their investigation and prosecution, but we 

must also adequately fund the defense of these cases. 

Accordingly, if additional funding is to be included in the new 

legislation, NACDL applauds the Financial Crimes Resources Act 

as a provision of funding not just for the investigation and prosecution of these offenses, but also for the defense. 

Mr. Scott, I note the $50 million to U.S. attorneys’ offices, the 

$100 million to the FBI, and $20 million to defense function. While 

we applaud the effort to fund the defense function, we believe that 

that more than 7-to-1 disparity between two prosecutorial agencies 

alone is still out of balance. 

And as my time is limited, I would like to refer to my written 

statement with respect to NACDL’s position regarding each of the 

various unnecessary measures presently contemplated to create 

new Federal statutes, such as mortgage lending fraud, derivatives 

fraud, and TARP fraud, to address conduct that can easily be prosecuted under existing law. 

I would like to speak, however, on what we believe is the proposed ill-advised effort to expand the reach of the money laundering statute and effectively reverse the recent Supreme Court decision in the Santos case. 

In that case, the Supreme Court held that the crime of money 

laundering is confined to transactions and the proceeds of unlawful 

criminal activity that is engaging in transactions involving illegal 

criminal profits. That decision is appropriate. 

The proposed legislative change would frequently, as it would 

have in the Santos case itself, provide an enhanced penalty based 

solely on the underlying conduct that is already unlawful. In essence, it allows the very same conduct to be punished twice, first 

as the underlying crime, and then again and more severely as 

money laundering. 

Thank you again, Mr. Chairman, for allowing NACDL the opportunity to be heard on these very important issues. 

[The prepared statement of Mr. Pollack follows:] 

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PREPARED STATEMENT OF BARRY J. POLLACK


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Mr. CONYERS. Attorney Marcia Madsen is with the Institute for 

Legal Reform, which is an affiliate of the United States Chamber 

of Commerce. 


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TESTIMONY OF MARCIA G. MADSEN, INSTITUTE OF LEGAL 

REFORM, CHAMBER OF COMMERCE 

Ms. MADSEN. Good morning, Mr. Chairman, Ranking Member 

Smith, Members of the Committee. 

My name is Marcia Madsen. I am a partner in Mayer Brown, 

and I am here today representing the United States Chamber of 

Commerce and its Institute for Legal Reform. 

I noticed you referred to me as a senior partner, Mr. Chairman. 

I have—ladies always wonder when someone uses that expression—but since 1985, I have practiced in the area of public contract 

litigation and, among other things, have defended companies and 

individuals in connection with the False Claims Act, which is the 

subject of my testimony today, and working in the public procurement area. 

So on behalf of the Chamber, I am really here today to talk about 

H.R. 1788, the legislation that was introduced yesterday to amend 

the civil False Claims Act. 

As an initial matter, I want to emphasize that the Chamber supports the Department of Justice and the agency inspector general 

in their efforts and role to identify and eliminate fraud involving 

taxpayer funds. The Chamber recognizes that the False Claims Act 

is an important tool to fight fraud in Federal contracts and Federal 

programs. The $21.6 billion recovered since 1986 evidences that the statute 

is working, particularly when it is deployed by the government. 

The Chamber believes very strongly the proposed amendments to 

the statute, which largely are directed at encouraging qui tam 

plaintiffs to file and maintain meritless actions are unnecessary. 

Further, those amendments may actually disrupt the government’s 

efforts to pursue fraud, waste and abuse in Federal contracts and 

programs and unjustly—plaintiffs who have—who do not deserve to 

be rewarded. 

Since this Committee last looked at the False Claims Act amendments last summer, there have been some pretty dramatic changes 

in the government’s investigative and oversight mechanisms and 

resources. There are just a couple of points that I would like to 

summarize from my written testimony. 

The first is, I would like to draw in particular the Committee’s 

attention to the new mandatory disclosure rule that became effective in December 2008 at the behest of the Department of Justice. 

This new regulation, which was described by the government itself 

as a sea change, requires Federal contractors to disclose potential 

violations of the False Claims Act, certain criminal laws related to 

procurement, and significant overpayment. 

While this rule was initially exhausted, an amendment to the 

Federal Acquisition Regulation, which I will undoubtedly refer to 

as the FAR here and confuse everyone, that amendment became 

applicable to other programs very quickly, as it is sort of become— 

mandatory disclosure has kind of become the latest thing in government programs. 

It was quickly picked up by the implementing guidance in the 

American Recovery and Reinvestment Act for grants and assistance 

agreements and in the TARP legislation for financial agreements 

under the TARP, as well as contracts. 

71 

But the point I want to emphasize to the Committee today about 

this regulation is that, because the government’s investigators have 

direct access to obtain information from contractors and grantees, 

there is really no need to enact changes to the False Claims Act 

to further encourage relaters. 

Just in summary, the rule has two main features. First, contractors with larger contracts as required to have a code of business 

ethics and conduct, a government-approved internal control system, 

and that control system has to be designed to detect improper conduct. 

The system is required to include timely, mandatory disclosure 

whenever the contractor has credible evidence of a potential violation of the False Claims Act. 

Subcontractors also are required to have such a program and to 

make disclosures. And I heard the comments and the questions of 

the Members of the Committee today about concerns about subcontractors. They are covered by the rule. 

Importantly, contractors and subcontractors must provide full cooperation with government investigators, which includes providing 

access to employees who have information about the potential violation. 

The second point I would like to note is that a contractor of any 

size is subject to debarment for a knowing failure to timely disclose 

credible evidence of a violation of the False Claims Act under designated criminal laws or significant overpayment. 

This obligation does not end until 3 years after final payment, 

and it requires a look-back at the time of final payment, even if 

contract performance has long been completed. 

When you consider that only 2 percent of False Claims Act recoveries come from—it is pretty obvious, I think, that the government 

investigators’ access under the mandatory disclosure rule is going 

to be a more effective means for determining whether there is a 

meritorious case or a violation at an earlier stage. 

And, Mr. Chairman, you commented earlier, what is the best 

way to get at fraud? And I would submit to you that the mandatory 

disclosure rule is a better solution than using third-party relaters. 

I would like to comment just briefly about some of the problems 

that arise in the legislation—really, in the proposed legislation, as 

a result of the advent of the mandatory disclosure rule. 

The first relates to the public disclosure provision. With the 

change to the amendment proposed in the bill, a relater would actually be able to proceed with an action involving the same transaction or facts that have already been mandatorily disclosed. 

Just a couple of examples. Because of the exclusivity standard in 

the bill, a relater who has any additional information, no matter 

how small, would be able to proceed, because it would be new information. 

Also, the definition of public is not clear, and it is not clear with 

that definition whether a mandatory disclosure would qualify as an 

audit or an investigation sufficient to have these actions dismissed. 

So unless this language is revised, it is possible that a relater 

would be able to obtain a recovery, even though the proper government authorities had the information and were pursuing it. 

72 

A similar problem exists with respect to the bill’s 9(b) provision. 

If a relater is subject to a lower pleading standard, the relater will 

be allowed to proceed to obtain discovery and potentially to obtain 

a mandatory—or is able to obtain a recovery even though the mandatory disclosure has already been made to the government and 

the government already had the information. 

We have the same concern about sharing information under civil 

investigative demands. 

The second point I just wanted to make very briefly—and it is 

made at length in my written testimony—is that the government 

in—really, in the last few months has tremendous new assets and 

resources and capabilities to pursue fraud. 

The recovery act created a new Accountability and Transparency 

Board, the ability to use the I.G. powers, and additional authority 

to compel documents and to have hearings and compel testimony. 

It also authorized the Recovery Independent Advisory Panel, which 

also can take evidence and hold hearings. 

The recovery act added new powers for the I.G.s and the GAO 

to investigate and to subpoena testimony from recipients of recovery act funds. And that is new authority for them. 

The recovery act contains a separate whistleblower provision authorizing damages and a right of action in Federal court. And it 

contains a lot of money for the inspector general, over $220 million 

for new resources. 

The TARP also gets a special I.G., extensive audit rights, extensive supervision by the GAO, and there is mandatory disclosure for 

TARP. 

So, in sum, I would just like to note that there really is no need 

to give relaters and their lawyers more tools to pursue fraud. When 

you think about the best way, the best way here is if the government steps in to the get the information and where is the value— 

value for the government is to use its resources and the information, rather than basically outsourcing that function to the relaters. 

I would be happy to respond to any questions. 

[The prepared statement of Ms. Madsen follows:] 

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Mr. CONYERS. Jeb White, president of a couple of organizations 

that deal with the public interests and in dedicating their attention 

to combating fraud through promotion of the False Claims Act and 

other provisions. 


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TESTIMONY OF JOSEPH E.B. WHITE, 

TAXPAYERS AGAINST FRAUD 

Mr. WHITE. Chairman Conyers, Ranking Member Smith, and 

Members of the Committee, thank you for inviting me to speak 

here today. I am here on behalf of Taxpayers Against Fraud to 

voice our strong support for this commonsense law enforcement legislation, the False Claims Act corrections act of 2009. 

Since 1986, over $20 billion stolen dollars have been recovered 

under the False Claims Act, which includes over $12 billion from 

qui tam whistleblowers’ suits. And it is now widely considered the 

government’s primary fraud-fighting weapon. 

However, over the course of time, liability loopholes have been 

ripped into the act, and judge-created procedural roadblocks have 

emerged, greatly undermining the Justice Department’s effort and 

permitting fraudsters to steal our tax dollars with impunity. 

Late last congressional term, you sought to correct these problems by passing this very legislation. Unfortunately, time was 

short, and the bill ran out of time. However, with our country in 

the midst of an economic crisis and nearly $1 trillion stimulus dollars now vulnerable to fraud, it is now more important than ever 

to fix the problems that are holding back the False Claims Act. 

We fully support every provision of this bill, but I wanted to 

highlight four problems that this legislation would fix. Number 

one, the bill clarifies that the act protects government money disbursed by government contractors. This clarification is badly needed to ensure that the act remains fully effective in an era in which 

so many government functions are outsourced to government contractors. 

As we all know, we now rely largely on this outsourced government to award and oversee contracts, to disburse government 

funds, and to detect fraud in our government contracting system. 

However, after a recent Supreme Court decision, false claims 

submitted to this outsourced government are now largely out of the 

reach of the False Claims Act. In this decision, the court read the 

act to apply only to false claims that are potentially reviewable by 

‘‘the government itself.’’ 

This bill closes that loophole by focusing not on who actually inks 

the check, but on the nature of the funding. 

Number two, the bill attaches liability when someone wrongfully 

retains an overpayment of government funds. This ‘‘finder’s keepers’’ scheme is perhaps the most pervasive fraud attacking our 

American tax dollar, but the act remarkably does not reach these 

funds. 

For example, the act currently does not apply when health care 

providers identify overpayment brought to them through mistaken 

billing and then makes the deliberate decision to keep those funds. 

This blatant dishonesty would run afoul to criminal law and, as 

Ms. Madsen said, would run afoul of the mandatory disclosure rule, 

but it would not violate the Federal False Claims Act. 

Number three, the bill clarifies that a qui tam whistleblower 

with detailed knowledge of fraudulent schemes may proceed with 

his case, even if he can’t get his hands on the actual invoices. This 

provision, which explicitly defines how Federal Rule of Civil Procedure 9(b) applies to qui tam suits. It is needed to remove the judiVerDate Aug 31 2005 15:29 Jan 28, 2010 Jkt 000000 PO 00000 Frm 00090 Fmt 6633 Sfmt 6601 H:\WORK\FULL\040109\48438.000 HJUD1 PsN: 48438
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cial confusion that is currently undermining the country’s fraudfighting efforts. 

The simple fact is that our Justice Department needs whistleblowers to provide the inside information about fraudulent 

schemes. They already have the invoices. They can access those 

through their files. They need the whistleblowers to point out the 

fraudulent schemes. 

This is precisely why the Justice Department has repeatedly and 

consistently argued for the very standard codified in today’s bill. 

Number four, the bill vests solely with the government the power 

to dismiss cases that are based on public allegations. The act’s socalled public disclosure bar is designed specifically to protect the 

government’s interest from qui tam pleadings that merely copy 

public allegations of fraud. 

Other provisions in the act are designed to protect the defendant’s interests. But when it comes to the public disclosure bar, it 

is the government who should properly assess whether or not the 

whistleblower’s pleading are parasitic on what is out in the public 

domain. 

Yet, time and time again, defendants have improperly filed these 

motions under this provision and, time and time again, have delayed adjudication on the merit to wear down their opposition. 

In many cases in which the defendants have filed these motions, 

there is no government investigation involving the public disclosure. If the government was concerned about it, they would and 

can and do file motions to dismiss these cases. 

The opponents of this corrective legislation argue that the False 

Claims Act is working ‘‘well enough.’’ They argue that we don’t 

need the inside information of fraud provided by whistleblowers. 

They argue that the country should somehow be satisfied with recovering a portion of its stolen funds. 

They offer up the recent regulatory life preserver as somehow 

plugging the gaping liability loopholes imparting upon the fraudfighting vessel of the False Claims Act. The problem, of course, is 

that the False Claims Act relies upon inside information to uncover 

fraud. 

I encourage you to recognize the realities of fraud, the realities 

of fraud prosecution, detection, and support this legislation to rectify the deficiencies of this act. For when it comes to fighting fraud, 

particularly in today’s economic environment, it is not a matter 

about settling for well enough. 

Thank you so much. 

[The prepared statement of Mr. White follows:] 

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PREPARED STATEMENT OF JOSEPH E.B. WHITE


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Mr. CONYERS. Crime Subcommittee Chairman Bobby Scott? 

Mr. SCOTT. Thank you. Thank you, Mr. Chairman. 

Mr. Pistole, could you remind me how many agents that you had 

on board during the savings and loan crisis? 

Mr. PISTOLE. Yes, Congressman. We had approximately 1,000 

FBI agents who were dedicated to the savings and loan crisis. 

Mr. SCOTT. And is this crisis significantly more complicated than 

the savings and loan crisis? 

Mr. PISTOLE. Absolutely. 

Mr. SCOTT. I remember the savings and loan crisis, a lot of the 

crisis was caused by just the fluctuation in interest rates or the 

long-term rates just put a lot of banks out of business, and it 

wasn’t the fraud and the schemes. 

Is more crime involved in these cases today than back then? 

Mr. PISTOLE. We believe so. And, obviously, we are still assessing 

it on a case-by-case basis, in terms of the dollar losses. But based 

on the suspicious activity reports that have been filed and our ongoing investigations, yes, the losses here appear to be much more 

significant than in the S&L crisis. 

Mr. SCOTT. And you had 1,000 then. How many do you have 

dedicated to the problem today? 

Mr. PISTOLE. We have approximately 250 FBI agents dedicated 

to the mortgage fraud issue. 

Mr. SCOTT. Okay. We have heard discussions of some of these 

loans and people looking the other way. If somebody packages up 

a bunch of worthless documents and passes them off as mortgages—worthy securities, where are the crimes? 

Mr. PISTOLE. Well, clearly, there could be false statements that 

are made. There could be wire fraud, mail fraud, as you mentioned 

earlier, in the securitization of those—the packaging of those mortgages and other financial instruments. 

So there is any number of fraud that may have been committed 

just depending on the actual fact of the investigation. 

Mr. SCOTT. Ms. Glavin, you indicated that there are hundreds of 

convictions. Can you give us an idea of the disposition of some of 

those cases, including the fines and forfeitures that you were able 

to get? 

Ms. GLAVIN. There have been hundreds of convictions since—between 2004 up until now for the many nationwide sweeps that the 

Justice Department has been involved in, in mortgage fraud cases. 

I can get you, you know, some more specifics on the exact sentences, but what I can say is, during the hundreds of people that 

have been arrested, convicted and sentenced, people have gotten 

jail time. There is restitution that is required to be ordered by statute in those cases, and I would refer you also to some of the specific 

examples I gave in my testimony on some of the sentences and the 

fines. 

Mr. SCOTT. Forfeitures? 

Ms. GLAVIN. Forfeitures, as well, yes. 

Mr. SCOTT. If billions and trillions of dollars have been lost in 

this mess, then trillions—billions and trillions have been made by 

somebody. Are we anywhere close to recovering a lot of what has 

been stolen? 

112 

Ms. GLAVIN. I probably should separate out the two concepts. 

Millions of dollars can be lost, but, speaking from the perspective 

of the criminal division, we can’t necessarily go after that unless 

it is related to a crime. 

So to the extent there is a crime involved, the criminal division 

and U.S. attorney’s office will go after it, prosecute it, and we will 

seek restitution and forfeiture to the extent we can. 

Separately, if there is not a crime and money lost, you can certainly look at that from the department’s civil division and see 

what civil enforcement remedies are available and if it meets the 

statute. 

But there is no question that the department will look, when appropriate, and seek restitution, forfeiture, and action, whether it be 

civil or criminal, to retain lost funding. 

Mr. SCOTT. Are you using RICO and conspiracy statutes? 

Ms. GLAVIN. I don’t want to address this specifically using the 

RICO and conspiracy statutes unless they are appropriate and unless—I don’t want to get out of—speak hypothetically, but we used 

what tools we have statutorily in fraud cases to go after—to go 

after these crimes. 

Mr. SCOTT. Do you know whether or not your forfeitures are 

more or less than the cost of the prosecutions? 

Ms. GLAVIN. I don’t know that. I know, though, that each year— 

forfeitures in the last couple of years totaled hundreds of millions 

of dollars. I can’t make an assessment based on what the cost 

would be of prosecuting a comparison to forfeitures. 

Mr. SCOTT. Iraqi contractor fraud, do we have a problem with jurisdiction? 

Ms. GLAVIN. We have been able to prosecute procurement fraud 

with respect to reconstruction in Iraq and Afghanistan. We have a 

procurement fraud task force that has been focusing on that. And 

there have been dozens of convictions as a result of our efforts. 

So I know that we are able to have jurisdiction in a number of 

instances, and we have had successful prosecutions. As to the specifics of whether there have been problems encountered on jurisdiction, I am happy to speak with my people about that and get back 

to you. But I know we have had success in that area. 

Mr. CONYERS. Lamar Smith? 

Mr. SMITH. Thank you, Mr. Chairman. 

Mr. Chairman, my first question is to Mr. Pistole. This follows 

up just a little bit on the first question that Mr. Scott asked you, 

about the number of agents, but I want to bring it current. Would 

you go into a little bit more detail about the FBI’s agents that combat mortgage fraud, number of agents assigned to mortgage fraud, 

number of task forces that exist that combat it, as well, maybe 

something about law, local and State law enforcement efforts, and 

then any other initiatives that the FBI is taking? 

Mr. PISTOLE. Gladly, Congressman Smith. Thank you. 

Going from 2005, just to put it in context, we had about 720 

mortgage fraud investigations. We now have over 2,000 investigations. And then in fiscal year 2007, we had about 120 agents working. And as you have heard, we have more than doubled that to 

250. 

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We also have approximately 50 financial analysts, intelligence 

analysts who help work—just from the FBI—who work on this. 

And then there is an additional approximately 250 State and local 

and other Federal agents and officers who work on the mortgage 

fraud matter. 

So that is a broad brush on it. We also have people working securities fraud and in corporate fraud. 

But in terms of the working groups and task forces, we have 18 

regional mortgage fraud task forces and 47 working groups, so a 

total of 65 regional task forces or working groups addressed to 

mortgage fraud. The other corporate and securities fraud address 

things such as the Ponzi schemes, such as Madoff, and then other 

issues. But that is just a brief overview on the mortgage fraud. 

Mr. SMITH. Thank you, Mr. Pistole. 

Ms. Glavin, if I could ask you in regard to Federal criminal laws 

whether there are any gaps or whether there are any changes that 

you would like for us to make that will enhance the prosecution of 

mortgage fraud? 

Ms. GLAVIN. Yes, Congressman, the department has already expressed its support for the bill—the Fraud Enforcement and Recovery Act, which just passed—came out of Senate Judiciary Committee, and it contains what we would call enhancements to some 

of our fraud statutes. Some of the enhancements in those statutes 

mirror a piece of legislation I know is in draft form here in the 

House, the Fight Fraud Act. 

Those enhancements would be that we would support expanding 

the definition of financial institutions—— 

Mr. SMITH. Okay. 

Ms. GLAVIN [continuing]. In fraud crimes, such that they would 

include mortgage-lending businesses. That would make it easier for 

us to bring prosecutions. 

In addition, we would propose amending the major fraud statute, 

18 USC 1031, it is focused on procurement fraud right now. And 

we would ask that it be amended such that it would include funds 

relating to TARP or economic stimulus. 

So those are some of the revision that we would support. 

Mr. SMITH. Those are good suggestions. Thank you. And I hope 

we take them under advisement, as well. 

Ms. Madsen, let direct my next and final question to you. And 

let me mention some statistics in regard to the False Claims Act 

and ask you to respond. 

More than 90 percent of the amounts recovered in the false 

claims cases brought by private plaintiffs have come from the 20 

percent of the cases in which the Federal Government has intervened. That means that only 10 percent of recoveries have come 

from the 80 percent of the cases where the Justice Department has 

declined to pursue them. 

Could these numbers be evidence of the lack of merit to the majority of the False Claims Act cases brought by private plaintiffs? 

Ms. MADSEN. Congressman Smith, I think there is probably some 

truth in that statement. I don’t know that it is an absolute truth. 

Mr. SMITH. I am just looking at it for a possibility here. 

Ms. MADSEN. Possibility. I think—I mean, we know that the—— 

Mr. SMITH. Absolute truths are hard to find. 

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Ms. MADSEN. Right, right, especially—never mind. [Laughter.] 

The Justice Department reviews qui tam complaints very carefully, investigates them, and makes very thoughtful decisions typically about whether to intervene or not intervene. So I think you 

can safely say that, when the Justice Department decides not to intervene, they have made a conclusion that the case isn’t probably 

worth—doesn’t have the merit to be worth their time. 

Mr. SMITH. And it seems that that is the case most of the time, 

is the point. 

Ms. MADSEN. My friend, Mr. White, here would say, but, you 

know, in those additional cases, the relater should be allowed to 

proceed because there may be another in there somewhere and the 

Justice Department might get back in and there might be a recovery. 

I think the point here really is that, is that the most efficient 

really way to do this? Is that the right way to expend funds, particularly now that we have this mandatory disclosure rule, where 

the information is available to the government at an early stage to 

make its decisions about whether to proceed? Is that really the 

most efficient way to spend the money? 

Mr. SMITH. Okay. Thank you, Ms. Madsen. 

I yield back, Mr. Chairman. 

Mr. CONYERS. Hank Johnson? 

Mr. JOHNSON. Thank you, Mr. Chairman. 

You know, we live in a country where most of us are proud of 

the system that we live under. And we make certain assumptions 

about our system. And one the aspects of the criminal justice system is that, you know, it is an adversary system, both civilly and 

criminally. You have two sides. You have a judge to rule on the 

law. You have a jury on occasion or—and you have a right to a jury 

trial. 

And citizens, or peers, make the decisions on the substance of the 

allegations against you. And both—in order for that adversary system to work, one of those parties should not have their hands tied 

behind their back and the other one is free and big and healthy. 

And, you know, it is predictable what is going to happen in that 

kind of a situation. And regardless of whether or not the accused 

is innocent or guilty, the fact is that justice in this country comes 

when there is a fair trial. 

And so I support all measures that get at criminal misconduct. 

And also, you know, not to be left out of the consideration is the 

criminal defense bar. 

I know a lot of—under these measures that are being proposed, 

they bulk up the prosecution’s ability to get at various crime, but 

I see nothing that would actually assist the criminal defense bar 

in terms of having the resources to defend these cases for people 

who will need public defenders. 

Of course, there is a group of—we certainly need to change our 

focus and concentrate more on the white-collar—I mean, upper echelon of the fraudulent activity, while at the same time dealing with 

those who perhaps may not have the funds to have an attorney, so 

they need a public defender. 

Would Ms. Glavin and Mr. Pistole, would you all support additional funding for the public defender’s office federally, as well as 

115 

grants, Federal grants to States to beef up their public defender 

programs? 

Ms. GLAVIN. I have not seen any type of proposed legislation on 

this. And I am sure that the department would be happy to take 

a look at this. 

Certainly, the department agrees that, in every case in which 

you have a vigorous prosecution, you are entitled to very competent 

defense counsel to defend against the prosecution. So I am sure 

that the department would be happy to look at any proposal that 

you might have. 

I am just not as familiar with what the funding levels are, so I 

can’t speak to that. 

Mr. PISTOLE. Yes, Congressman, obviously, fundamental fairness 

and the rule of law assume that there is an adequate defense. And 

that is critically important to our system. 

I would be glad to work, obviously, with the department and the 

Committee to further explore that. 

Mr. JOHNSON. Okay, Mr. Pollack—Pollack or Pollack? 

Mr. POLLACK. Pollack, Congressman. 

Mr. JOHNSON. I am sorry. Can you comment on that specific 

issue, as well? 

Mr. POLLACK. Yes, Congressman. I think you have hit on a vitally important issue, and that is, as we beef up the Federal prosecution and investigation of these cases, we equally have to beef up 

the defense function. It is the only way that you are going to make 

sure that innocent people are not convicted along with the guilty. 

I talked with Congressman Scott about the vast disparity between the resources that are being allocated to the prosecution 

function and the defense function. And I think that disparity has 

to be lessened. 

I would also note that your point about public defenders is an apt 

one. And that line in terms of where the higher echelon is that can 

still afford the private bar versus the increasing numbers that are 

turning to public defenders keeps moving, and that is largely a 

function of the forfeiture laws that allow, at the time that a person 

is charged, while they are still presumed innocent and have been 

found guilty of no wrongdoing, to have their assets restrained and 

not available even for the use of their own defense, so that individuals who had had substantial resources nonetheless are turning to 

the taxpayer to fund their defense. 

And as long as that continues to be true, it is all the more important there are public resources available to defend these cases, 

which are necessarily complex cases that require a lot of resources 

to defend. 

Mr. JOHNSON. Anyone else want to comment? 

If I may, Mr. Chairman—okay, all right, thank you all very 

much. 

Mr. CONYERS. Dan Lungren? 

Mr. LUNGREN. Thank you very much, Mr. Chairman. 

Mrs. Madsen, thank you for your testimony. I appreciate the fact 

that you have stated that Chamber’s traditional position in supporting DOJ and the inspectors general, working to detect, investigate and prosecute fraud involving taxpayer funds. 

116 

However, as one of the sponsors of the False Claims Act amendment, I am a little disappointed in the Chamber’s position here. 

And I am trying to find out exactly what the position is, because 

you said two things. They both may be true and compatible, or they 

may be neither/or. 

You said, number one, I thought, that the False Claims Act has 

not been effective. And you gave the numbers of the relatively 

small amount of recoveries. And then, on the other hand, you said 

you don’t support strengthening it. 

So what I am trying to find out is, are you saying the Chamber’s 

position is you don’t support the false—an effective False Claims 

Act or are you saying that you would support it if it were effective? 

Ms. MADSEN. Mr. Lungren, you may have misconstrued my testimony. The statistics that the Department of Justice publishes show 

that in the cases in which the Department of Justice chooses to intervene, which is about 20 percent of the cases, are responsible for 

the lion’s share—— 

Mr. LUNGREN. I understand that. I heard that. You said that. 

What I would like to know is, do you support strengthening the 

False Claims Act to make it effective? Or do you believe it is inherently ineffective? 

Ms. MADSEN. We believe the False Claims Act is effective as it 

sits and does not need these changes. 

Mr. LUNGREN. Okay, so it is effective, even though you have said 

that the results are paltry. I mean, that is what I can’t quite understand. 

Again, I am biased in favor of it. People should know that it was 

originally called Lincoln’s Law. It wasn’t just Abraham Lincoln 

signed it, he thought it was so important. You read the language 

of the original act, it says it is to reward to the informer who comes 

into court and betrays his co-conspirator, indicating that there was 

a specific purpose to try and attract individuals who had knowledge 

to come forward. 

The second observation I have is that we have heard that the Department of Justice has a lot of work to do, has a lot of other things 

to do. Perhaps they can’t get everything. 

And perhaps even if a smaller amount is gotten by these individual relaters, as opposed to the—as opposed to the Justice Department, the fact that they recovery means that that money was 

falsely obtained by the people against whom it was directed. 

The other question I would have is that, in 1986, we revived this 

law under President Reagan. As a matter of fact, the Reagan administration at that time sent us letters talking about how it was 

necessary for us to strengthen it. And as I recall at that time, some 

business groups supported the strengthening of the act so that it 

could be utilized. 

And do you know—I don’t think you were there in 1986. I happened to be here in 1986. But do you know what the Chamber’s 

position was back in 1986 when we improved the law? 

Ms. MADSEN. You are correct that I was not here. But my recollection is that there were concerns about it. I think what has become visible, though, in the 20, what, 22 years since the law has 

been effective—— 

Mr. LUNGREN. I was a mere child when I was here. I just—— 

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Ms. MADSEN. Yes, I would have been a mere child, as well. The— 

is that when—when the statute is used by the Justice Department 

and when the Justice Department gets involved in a case that is— 

the law is very effective. 

The question is, for those non-intervening cases, whether that 

really is the best use of the government’s money for those very, 

very small number of recoveries. 

And the reason I mentioned the mandatory disclosure rule is because the way the rule operates is that the contractors and grantees—and the rule also applies to Medicare intermediaries—has to 

disclose. 

Mr. LUNGREN. Right, no, I understand what you are saying. 

Ms. MADSEN. They have to disclose. 

Mr. LUNGREN. You are supportive of those new improvements on 

those laws. I guess the question would be whether we need a multiplicity of laws to go against the fraud that might be there. 

I would just say that in 1986, the Business Executives for National Security, which is a group of executives basically in the 

‘‘military industrial complex,’’ came forward testifying, saying they 

supported strengthening the law at that time, because, and these 

are their words, ‘‘It is supportive of improved integrity to military 

contracting. The bill adds no new layers of bureaucracy, new regulations, or new Federal police powers. Instead, the bill takes a sensible approach of increasing penalties for wrongdoing and rewarding those private individuals who take significant personal risk to 

bring such wrongdoing to light.’’ 

And all I would say is, I think that testimony of that business 

organization, Business Executives for National Security, in 1986 is 

as valid today as it was then. 

Mr. BERMAN. Would the gentleman yield? I would ask for unanimous consent for one additional minute. 

Mr. LUNGREN. Of course I would be happy to yield to the gentleman who is going to agree with me. 

Mr. BERMAN. It is the only reason I asked. 

The gentlelady raises this issue, which I will pursue on my own 

time, of cases where the qui tam plaintiff brings the case, the Justice Department decides not to join in, but isn’t it—but I would 

just—this bill has nothing to do with changing that particular 

issue. 

This is a bill that strengthens the law and deals with some unfortunate court decisions that apply whether it is a qui tam plaintiff without Justice Department intervention or the Justice Department taking over the lead role in pursuing the case brought by the 

qui tam plaintiff. 

In other words, the testimony regarding non-intervention by the 

Justice Department and the merits of those suits really has nothing to do with the bill that is now in front of us. That is the only 

point I wanted to make. 

The bill we are dealing with deals with the substantive law, not 

the issue of what happens to a case where the Justice Department 

decides not to intervene. 

Mr. LUNGREN. I thank the gentleman. And before returning to 

my time, I would just say, Mr. Chairman, we went through a period of time in World War II where Secretary Biddle at that time 

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thought that, for some reason, the approach that underlies the essence of the False Claims Act somehow interfered with the government’s opportunity to investigate and the government’s opportunity 

to contract for needed services. 

And that led to the emasculation, essentially, of the law. And it 

was—again, I would just reiterate, during the Reagan administration, that there was a reconsideration of the question of whether 

or not you could just rely on the Justice Department to utilize its 

resources in these circumstances where we needed again to resurrect this law. 

And all I would say is that what we are attempting to do with 

our amendments is to correct some specific legal decisions that 

seem to call into question whether or not you can go after subcontractors for fraud. And we also facilitate the ease with which 

the plaintiff’s case can be dismissed by the plaintiff and the interaction of the Justice Department and the original bringer of the action. 

So it really goes to the question of whether you are going to continue to have an effective False Claims Act. 

And thank you very much, Mr. Chairman, for the time. 

Mr. CONYERS. Howard Berman? 

Mr. BERMAN. Thank you, Mr. Chairman. I just wanted to make 

a couple of comments and then ask a couple of questions. It has already been mentioned that this law has brought in $22 

billion to the taxpayers of recoveries from fraudulent actors, by 

people who have contracted with the government. In recent 

months, we have taken extraordinary steps to revive our economy. 

We have used government funds to shore up private entities. We 

have made a massive investment of taxpayer dollars to stimulate 

the economy. 

We can have a debate about the merits of any of those bills and 

policies, but the one thing we know is that, in the context of all 

these different programs, there will be some bad actors who will 

try to defraud the government through these programs. And that 

makes it even more important that we at this point strengthen 

what has proven to be an enormously successful tool against fraud. 

So there is a particular logic to the timing of doing this now, 

given what we have done in terms of public investments and private sector or the use of contractors, these kinds of things. 

I was amused to hear the opponents’ primary argument against 

a bill which seemed to be that the False Claims Act doesn’t need 

any fixing because it worked well enough or, as Ms. Madsen, said 

it is even more than sufficient. I don’t agree with that conclusion. 

And, by the way, I do have a vivid memory of 1986, because— 

as young as I was—that and the Chamber—had more than concerns about the bill. They were in outright opposition to the bill 

and spent the next several years after the bill passed—the bill that 

was signed by President Reagan—trying to repeal or dilute a variety of its provisions. That was the Chamber’s position at that time. 

What we have here is several judicial decisions that have weakened key provisions of the False Claims Act, narrowed its application, misconstrued congressional intent, and I think, in many cases, 

the clear language in the law and the legislative history, leaving 

entire categories of fraud outside the reach of the law. 

119 

Mr. White has talked about a number of those issues in his testimony, but I would like to ask Mr. White two questions. 

First, the Chamber asserts that only 2 percent of the recoveries 

under the False Claims Act have come from qui tam suits that the 

government declined to join, putting aside that a huge amount of 

the $22 billion comes from cases that, because qui tam plaintiffs 

filed them, the Justice Department had to go through a process, 

which in many cases caused them to join that lawsuit and doesn’t 

speak to those monies. 

But that 2 percent figure, it seems low to me. And does that accurately reflect the contributions of these cases? Give us some examples of why that number doesn’t tell the whole story. 

Mr. WHITE. Mr. Berman, first off, I wanted to thank you for having the foreclosure back in 1986 to resurrect this bill. 

The second thing is, you know, during my tenure at Taxpayers 

Against Fraud, I have worked with a lot of good Federal and State 

government attorneys who are as zealous advocates of protecting 

the public—but I can assure you—and they would tell you firsthand—that they need the help of whistleblowers to uncover what 

is going on inside of that company. Putting aside the mandatory 

disclosure rule, where the company gives you what they say is 

going on, that inside information from whistleblowers is key. 

To provide you one example of why that number isn’t accurate 

and doesn’t reflect truly what happens, in 1989, a case was filed 

by two Northrop Grumman employees against the contractors involving radar-jamming devices. And what the employees were saying was that they were ripping off the government, the fact that 

they were over-billing, they were doing a whole host of fraud that 

happened. 

The government looked at the case and, 3 years later, decided to 

decline to intervene in that case. The relaters and their counsel, 

convinced that there was something wrong going on, proceeding 

forward for the next 9 years on their own, investigating, spending 

hundreds of thousands of dollars, investigating what was going on 

there. 

Finally, in 2002, 12 years after initially filing that case, the government intervened and the case settled in 2006 for over $160 million. That case, in the Department of Justice statistics, is listed as 

an intervening case, but I posit that, for 9 years, the government 

wasn’t there. It was because of the efforts of that relater’s counsel. 

So that 2 percent number doesn’t reflect the billions—and the 

number is well into the billions, and I can give you a more accurate 

count—of the times where the government declined, the relaters 

and their counsel moved forward, and the government subsequently intervened. Those cases happen time and time again to the 

tune of well over $1 billion. 

Mr. CONYERS. Bob Goodlatte? 

Mr. GOODLATTE. Well, thank you, Mr. Chairman. 

And I thank all these panelists for their contribution today. 

I would like to start by asking a question of Acting Assistant Attorney General Glavin. 

Welcome. You mentioned that the Department of Justice is working with the inspector general of the TARP to find ways to avoid 

fraud and abuse of the stimulus package fund. And I wondered if 

120 

you could tell us in what ways you are acting together to accomplish this. 

And do you plan on harnessing technological tools, like tracking 

software, to track where the funds from TARP and the stimulus 

bill are going and how they are being used? 

I recently introduced legislation along with Congresswoman 

Maloney from New York that would require the use of software to 

aggregate all the government reports to get a full picture of how 

the recipients of the TARP money are using it. And I wonder if you 

are familiar with that technology and if you are planning on deploying it. 

Ms. GLAVIN. I am not as familiar with the technology just mentioned. What I can say about the department’s relationship with 

the TARP is that, one, it is a natural relationship, because the 

TARP is going to be doing investigations. And, of course, the department would handle prosecutions or referrals. And we have already, you know, had discussions with the office of the SIGTARP 

about anticipating that and about how to do it. 

Secondly, I know there is coordination with the SIGTARP, in 

terms of I know that they are—that office has met a number of 

times with the FBI to sort of talk about coordinating and 

leveraging resources. 

I know the SIGTARP has also formed a task force with a number 

of different investigative agencies to talk about how to share information, leverage resources, do the necessary training, with a bill 

that includes a lot of sub-provisions to it and can sometimes be 

complex to understand how the monies go out and what to look for 

in terms of fraud. 

I know that the department also has had discussions with the 

SIGTARP, specifically about our experience with the False Claims 

Act and whistleblowers. SIGTARP has a hotline, and there would 

be a natural partnership there. 

So it is—we have an ongoing dialogue with the SIGTARP, as well 

as we do with most of the inspector general community. 

Mr. GOODLATTE. In your communication with them, would you 

look into this technology, as well, and have conversations with 

them about the possibility of utilizing it? 

Ms. GLAVIN. I would be happy to follow up on that once I get a 

little more familiarity with it, sir. 

Mr. GOODLATTE. Great. Thank you. 

And a follow-up question on a separate subject. What statutes is 

the department using in bringing charges against those who engage in predatory lending or mortgage companies that defrauded 

their customers? 

Ms. GLAVIN. I mean, the department uses its traditional statutes, 

such as the mail fraud, wire fraud statute. The amendments to the 

major fraud statutes, as well as the bank fraud statutes, that 

would expand the definition of a financial institution to include 

mortgage-lending businesses would give us another tool in which to 

prosecute people who defrauded mortgage-lending businesses, such 

that we don’t always have to look for mails and wires and see that 

they are further into the scheme. 

One of the reasons that we support the amendments in the 

FERA legislation is because it would certainly make some of the 

121 

crimes easier to explain and present, in terms of our grand juries 

and to juries. 

Mr. GOODLATTE. Thank you. 

Mr. Pistole, it is my understanding the FBI has currently 18 regional mortgage fraud task forces. And I wonder if you could explain that to us. Why were these task forces set up on a regional 

basis like that? 

Mr. PISTOLE. Yes, Congressman. The idea was to leverage the resources beyond the FBI with the other—both Federal, State and 

local investigators to approach the issue from a broader perspective. 

So in addition to those 18 task forces, we had the 47 working 

groups. And we also have the national mortgage fraud team at 

headquarters to try to use intelligence, such as you were talking 

about with software, to drive those investigations, rather than sitting back and waiting for referrals, whether it is from SIGTARP 

or somebody else. 

So we have members from other, for example, HUD or Federal 

Reserve or State or local police, perhaps, that receive referrals trying to work in a unified way to bring a broader perspective, rather 

than just this specific, discrete area that would limit our information. 

The whole idea is to push as much information as we can to our 

partners, obviously, while protecting privacy and all those issues, 

but making sure that we have the best available information across 

the country. And we believe these regional task forces and working 

groups are the best way to accomplish that. 

Mr. GOODLATTE. Are you getting results? 

Mr. PISTOLE. We are. We have had a number of successful matters. You heard about one earlier in Chicago, dealing with a recent 

takedown of an undercover operation, where we had some very 

good successes. And that is all part of this effort to leverage our 

resources with other agencies. 

Mr. GOODLATTE. One more question, if I might, Mr. Chairman, 

to Mr. Mintz. Are you seeing results from your public awareness 

campaign to educate consumers about these various fraud 

schemes? 

Mr. MINTZ. Thank you for asking. 

Frankly, no. And the reason is, as I said in my testimony, I think 

that there are so many multiple conduits from which people are 

hearing about help and so many multiple conduits to which they 

would go for help that the ability of swindlers to step in and interpose themselves as part of the help is very difficult to stem on a 

local level. 

It is why I have suggested that this Committee should consider 

using the 311 systems and the 211 systems across the country as 

the one tamperproof, already-trusted source through which people 

would be able to get information. 

From a local perspective, when I step up in front of a camera and 

tell the public, ‘‘Be careful of X,’’ you need to tell them where to 

go and where it is safe. And so if you all could leverage the resources and the regulations to make sure that, for example, only 

through 311s and 211s could you access HUD-certified counselors 

and add in a ban on the fee-for-service in this industry, you would 

122 

effectively shift the tide, and people would be able to turn to the 

one number that they already know, the one number that nobody 

can pretend is them, and access those services. 

Without that, the truth is, it is a very complicated message, and 

it is much easier to be swayed by the swindling messages. 

Mr. GOODLATTE. Thank you. 

And thank you for your forbearance, Mr. Chairman. 

Mr. CONYERS. Sheila Jackson Lee? 

Ms. JACKSON LEE. Mr. Chairman, thank you for holding this 

hearing. And it is both needed and maybe sad, a sad commentary 

on where we are with respect to the basic commitment to legal 

structures that will protect consumers. 

We have seen an enormous amount of challenges to the system. 

And I would suggest to my good friend, who is representing the 

criminal defense lawyers, that it is not expanded as much as it is 

fixing and restructuring, because apparently we have some glaring 

loopholes that large trucks have been able to go through both in 

the metaphoric manner, as well as literally. 

And I go to you, Assistant Attorney General Glavin, on why we 

are where we are. Let me just pose to you the fact that we have 

seen AIG prosecution, at least some malfeasance. We have seen it 

from a former hometown company of mine that had great respect 

previously, Enron. We have seen it from WorldCom, Adelphia. We 

have seen it from another native Texan, Stanford. 

We have seen these actions. We have seen a proliferation of 

major corporate fraud cases when we have also seen over the years, 

as our good friend from the criminal defense lawyers have indicated, maybe increase in penalties. 

Can you tell us what we are doing wrong that we are still seemingly having the atmosphere that creates or seems to grow these 

failures? 

Ms. GLAVIN. Congresswoman, where there is a lot of money involved—and this is an age-old problem—when money goes out the 

door, lots of money involved, greed is involved. It is not something 

that you could probably ever stop to the end of time. 

And what we do at the department is, when we see problems 

form, such as we saw with big corporate fraud in the last 10 years, 

we put something out there to address the problem, like the corporate fraud task force, do what we can to get in front of it and 

prosecute those crimes, educate prosecutors as to the new schemes 

that develop. 

We see it again. The Hurricane Katrina fraud task force formed 

a few years ago. As soon as we recognized there would be a big outlay of funds in connection with that, we knew there would be fraud. 

Ms. JACKSON LEE. So you are saying that the climate generates 

bad behavior in many instances sometimes. Let me just ask—give 

me one major new legal tool that you would want as part of the 

DOJ. 

Ms. GLAVIN. I have to pick one? 

Ms. JACKSON LEE. Just one. 

Ms. GLAVIN. We support the passing of the Fraud Enforcement 

Recovery Act, so I would say that is one, even though it is got several legal tools in it. But at this time, we would support the passage of that, and it went through Senate Judiciary Committee. 

123 

Ms. JACKSON LEE. All right. 

Let me move quickly to Mr. Rheingold and ask the question, do 

you think we should add language in—either through legislation, 

a freestanding bill, and otherwise? There are some fine lines between how the CEO of corporations seems to emerge undercover. 

We know that our good friend from Countrywide is still moving 

about and certainly has quite a bit of freedom here in the United 

States. But we are trying to craft language that suggests that malfeasance, inappropriate behavior bars you from ever doing business 

with the United States, whether you come back as a turtle or you 

come back as a dove, which is what many of the corporations do. 

What do you think about that added enhancement, though, you 

know, barring doing business, obviously, means that if Countrywide, for example, had Freddie Mac and Fannie Mae loans and 

tragically so many people were hurt, that they just can’t be in the 

business, no matter how they come back? What do you think about 

that? 

Mr. RHEINGOLD. I think fundamentally it is a good idea. I think 

one of the questions, when we turn about all this money out there, 

we had all this money that wasn’t being regulated. We had all of 

this money that was being pushed out there, and it was the wild, 

wild west. All sorts of bad behavior could go on because nobody was 

being responsible for it and nobody was being held accountable. 

So if you begin to hold the CEOs of these major companies accountable for the culture and the behavior of their companies, 

maybe that cost-benefit analysis will work in the future. 

So that next time lots of money is out there and lots of money 

can be made, they might think twice about creating a corporate 

culture that engages in systematic fraud. 

Ms. JACKSON LEE. And let me quickly ask—and I would like to 

ask the FBI director if he would follow up on a question that I am 

going to ask, in terms of any tools that you need, and particularly 

on these whistleblower cases, which I think are very crucial. People 

need protection in the workplace. 

But, again, Mr. Rheingold, if, for example, you suffer—this is 

your consumer hat now, not necessarily your legal hat—suffered in 

your credit score because you were a victim to predatory lending, 

should you have an ability to seek an appeal or reprieve on a score 

that went down because of your victimizing through that predatory 

lending process? 

Mr. RHEINGOLD. That is a whole other issue, but, yes, there are 

significant issues around consumers’ ability to fix their credit score. 

Credit reporting and people’s financial information is being ruined 

on a daily basis based on loans they should not have gotten, loans 

they didn’t get. 

And, in fact, one of the things that we need to do to improve the 

Fair Credit Reporting Act is that people have more control over 

their financial information and correct errors in that. And right 

now, we have a fair credit reporting system that simply doesn’t 

work properly to protect consumers. 

Ms. JACKSON LEE. But if you would conclude—I just need you to 

tell me about the two that you may need on the whistleblower aspect. The FBI usually is investigating on the basis of whistleblower 

claims under some of the bills that have been here, but what do 

124 

you need further to provide an enhancement and protection of that 

process? 

Mr. PISTOLE. Well, I agree with Ms. Glavin’s comments. Our 

issue is more simply the number of resources, rather than the legal 

tools, other than what she has mentioned. So where the Committee 

and the Congress can be most helpful for the FBI and others is— 

are in the amount of resources that we have to address this critical 

issue. 

Ms. JACKSON LEE. And you investigate both Federal employees 

and outside people who are whistleblowers? 

Mr. PISTOLE. Sure. 

Ms. JACKSON LEE. All right. 

I yield back. Thank you. 

Mr. CONYERS. Bill Delahunt? 

Mr. DELAHUNT. Thank you, Mr. Chairman. I want to pose a 

question. 

I mean, the economic crisis that we are in the midst of, the 

cause, if you will, of that crisis is not necessarily fraud, but it is 

the lack of a regulatory scheme—as I think you suggested, it was 

the wild west. 

If we had the tools and the resources had been allocated, would 

it have prevented the economic—or the financial crisis that we are 

experiencing? 

Mr. RHEINGOLD. I think the answer is absolutely yes. I 

talked—— 

Mr. DELAHUNT. It would have? 

Mr. RHEINGOLD. It absolutely would have. I talked about what 

we saw—— 

Mr. DELAHUNT. Without having a regulatory regime that—— 

Mr. RHEINGOLD. Oh, no. No, we need an—absolutely, we need to 

have a restructured regulatory market where accountability is in 

place. 

What we saw in the 1990’s in communities like Roxbury, and Jamaica Plain, and Mattapan, and communities in Chicago and Atlanta, were the same fraud that now permeates the whole country. 

And we knew it was going to happen because there was no accountability and there was no regulatory structure that actually 

protected the consumer from the bad behavior of banks. 

And when States attempted to address those problems, most notably Georgia, the Federal regulators not only stopped those consumer—they not only did not support those consumer protections, 

but they pre-empted those consumer—— 

Mr. DELAHUNT. Right. And I understand that. But I guess what 

I am saying is, is that—was there violations of a criminal statutory 

scheme that led to the crisis that we find ourselves in now? 

Mr. RHEINGOLD. I am—— 

Mr. DELAHUNT. Or is it lack of regulation? 

Mr. RHEINGOLD. I am not a criminal attorney. 

Mr. DELAHUNT. Okay. 

Mr. RHEINGOLD. But do I think that fraud permeated the mortgage lending industry for the last dozen years? Absolutely. 

Mr. DELAHUNT. But your understanding of fraud and my understanding of fraud might very well be the same, but it might be a 

behavior that currently is not criminalized. 

125 

Mr. RHEINGOLD. That could quite be possible. Again—yes. 

Mr. DELAHUNT. Let me ask the acting—the assistant attorney 

general, Ms. Glavin, her opinion on that. 

Ms. GLAVIN. I am not in a position to say what caused the current economic crisis. 

Mr. DELAHUNT. Okay. 

Ms. GLAVIN. What I do know is, looking back in retrospect, we 

have now seen a lot of schemes, such as Ponzi schemes, that could 

have gone on otherwise undetected that were exposed because people wanted to get their money out, it wasn’t there—— 

Mr. DELAHUNT. The collapse itself—— 

Ms. GLAVIN. Yes. 

Mr. DELAHUNT [continuing]. You know, revealed what was going 

on. 

Ms. GLAVIN. Yes. 

Mr. DELAHUNT. But we don’t know or it is subject to debate—my 

own opinion is it did not precipitate the collapse, but the lack of 

regulation and a lack of transparency. And I am not suggesting 

that we don’t need more resources and we don’t need to review and 

provide more tools. 

If it comes down to tools or resources—and I will direct this to 

the government witnesses, what is more important? 

Mr. PISTOLE. If I could start off with that, Congressman, going 

back to your first part of your question, the issue is partially—from 

an audit standpoint, for example, you look at fraud, waste or 

abuse, obviously. 

Mr. DELAHUNT. Right. 

Mr. PISTOLE. Some of the activity may have been fraud, obviously was fraud. Some may have been waste or abuse, which may 

not be—rise to a level of criminal violation. 

Again, from our perspective, we are looking at resources, because 

we are trying to do a lot of different things and trying to be 

proactive, rather than just reactive. We wouldn’t need additional 

resources to do that. So that is our—from the FBI’s perspective, it 

is a resource issue as much it is legal regimen issue. 

Mr. DELAHUNT. Ms. Glavin? 

Ms. GLAVIN. They are both pretty important. 

Mr. DELAHUNT. Okay. 

You referenced the TARP and I think it was the inspector general. And yet what I found particularly disturbing recently was a 

comment by the chair of the congressional oversight panel expressing frustration in the—with the Treasury Department not providing answers to the oversight panel. 

You are seeing—at least from what I am hearing, you represent 

that you are working in a collaborative way with Treasury? And if 

so, what is your secret, that somehow you are doing a—you seem 

to be getting more cooperation than Congress. 

Ms. GLAVIN. Speaking from the criminal division, as a criminal 

prosecutor—— 

Mr. DELAHUNT. Right. 

Ms. GLAVIN [continuing]. We are working with the SIGTARP. 

Mr. DELAHUNT. Give me—what does that mean, that acronym? 

Ms. GLAVIN. Well, I mean, when it happens is what we do when 

we work with any inspector general’s office. 

126 

Mr. DELAHUNT. So it is the inspector general’s office? 

Ms. GLAVIN. Yes, when I refer to the SIGTARP, I am referring 

to Mr. Barofsky, Neil Barofsky. 

Mr. DELAHUNT. And his team? 

Ms. GLAVIN. Yes. 

Mr. DELAHUNT. And does he have the resources? 

Ms. GLAVIN. You are going to have to ask him a little bit more. 

But what I can say is that there have been—I know he has had 

discussions with other investigative entities about how to leverage 

the resources. 

He has a certain amount of money in his budget. He wants to 

see if he is doing things that may perhaps overlap or he can work 

with FBI on so that they can pool their resources. 

Mr. DELAHUNT. I would hope that you and the FBI would coordinate with the inspector general and provide answers to the congressional oversight panel when they are proffered. 

Mr. PISTOLE. Right. We are, Congressman. And he is building his 

staff—I think he is up to 50 now—from where he was a couple 

months ago when he had just a handful. 

We actually had a meeting with him and his staff in New York 

yesterday. We meet regularly here. We have agents and analysts 

embedded with him to make sure that we can de-conflict and use 

those resources in the best possible way. And I would defer to him 

on the response to the oversight. 

Mr. DELAHUNT. That is all I have, Mr. Chairman. 

Mr. CONYERS. Thank you. 

Mr. DELAHUNT. I thank the panel. 

Mr. CONYERS. I thank them, too. 

This has been an extremely polite discussion about some matters 

that I don’t think have been covered adequately. To be honest with 

you, the failures of the Federal justice system are so enormous that 

to rationalize them with a few bills that will be taken up, and everybody will agree with, does not uncover the failure to anticipate. 

You know, we all have talked about—we know that when huge 

amounts of money go out that there are going to be problems that 

follow it. But there is nothing in the Department of Justice annals 

that show that anybody did anything about what they already 

know would happen. 

It is always after the fact. And this hearing only sets a predicate 

for us to begin to try to get in front of the curve and not come rushing in with these homilies about the—we know people do wrong, 

will do wrong when the large amounts of money are flowing 

around. So if I don’t feel happy about what I have heard, it is because it is correct. 

So I thank you very much. And the Committee is adjourned. 

[Whereupon, at 12:22 p.m., the Committee was adjourned.] 

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