FBI Keeps Wall Street in Its Crosshairs

A case involving mortgage derivatives and the biggest fish on the Street, Goldman Sachs, so far has only merited a civil charge filed by the Securities and Exchange Commission. A criminal investigation is said to be ongoing, according to several media reports.

One of the biggest single episodes of financial chaos, the implosion of AIG, produced a memorable villain, Joseph Cassano, who headed up the unit that engaged in the risky derivatives activities that led to the insurer's downfall. But Cassano's lawyers were recently notified that the Justice Department had closed its file on him.

Grupe said he could not talk about specific cases.

Landmark Wiretap Use

However, the Feds have not exactly been idling while a nation simmers. The U.S. Department of Justice announced the formation of a Financial Fraud Task Force last November. Not long after that, it revealed a sweeping insider trading case involving a major hedge fund, Galleon Group. The case is still ongoing and could ultimately produce the kind of message-sending convictions Wall Street usually gets after a period of excess (and then forgets).

The Galleon case has been described by the Justice Department as the biggest hedge fund insider trading case in history, and the first insider trading probe to involve extensive use of wiretaps. Accused mastermind Raj Rajaratnam has pleaded not guilty. Of the 22 defendants charged in connection with this case, half have already pleaded guilty.

Complex cases like the one against Galleon take time – but as the two-year anniversary of the financial crisis draws near, pundits and members of the public will demand that someone besides Madoff be held accountable.

The FBI's Grupe pointed to at least one successful, if not high-profile, conviction that he felt should have gotten more attention. The case involved a Credit Suisse bond salesman named Eric Butler who misrepresented some auction rate securities positioned as safe, backed by guaranteed student loans, but which were in reality laced with risky mortgage-backed derivatives. Butler was found guilty at trial last summer and earlier this year was sentenced to five years in prison.

More resources will continue to be used to go after Wall Street wrongdoing, Grupe said.

The Justice Department's Breuer, meanwhile, told lawmakers last month that resources are being added to address mortgage fraud and related financial crimes. In 2009, U.S. Attorney's Offices received money for 59 new prosecutors and 17 support positions for this effort. The department's budget for 2010 contains additional fraud enforcement resources, including five additional criminal division prosecutors and 35 U.S. Attorney's Office positions. And, in the projected 2011 budget, the department has asked for five fraud positions in the criminal division and 109 fraud positions in the various U.S. Attorneys' Offices.

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