No place to hide for scammers

Brooklyn - The FBI has had to shift agents from terror and other crime work to Wall Street investigations including the alleged Bernard Madoff Ponzi scheme, said David Cardona, head of the New York office's criminal division.

The Federal Bureau of Investigation has had to engage in "triage" in responding to successive frauds involving subprime mortgages, auction-rate securities and Madoff, who prosecutors said confessed this month to bilking investors out of $50 billion.

Cardona said: "We have to work those cases which we think pose the greatest threat.

"In this case, it's a threat to the financial system and Wall Street. It's the same with mortgage fraud. I'm ramping these squads up."

Special Agent Rachel Rojas, who once worked on tracing terrorist financing and al-Qaeda, now oversees 15 agents investigating mortgage fraud. He declined to say how many other agents he has reassigned from anti-terror work to financial crimes.

Rojas heads one of two such mortgage-fraud squads that work with federal prosecutors in Brooklyn and Manhattan and other federal agencies, Cardona said. The US Justice Department has created more than 40 mortgage-fraud task forces this year.

To address the rise in criminal investigations related to the subprime crisis and other financial crimes, his office has become more selective on the kinds of cases they'll take on, Cardona said. They do handle multimillion dollar fraud cases, while referring smaller cases to state prosecutors or to New York Attorney General Andrew Cuomo, Cardona said.

Even some big cases are left to others now. The FBI didn't get involved in the investigation of Marc Dreier, a New York lawyer charged on December 8 with defrauding hedge funds out of more than $100 million. The Dreier case is being handled by investigators in the U.S. Attorney's Office.

To save agents time, the New York office has also established Web sites and telephone hotlines for anonymous e-mail complaints and tips about mortgage fraud and the Madoff case, Cardona said.

Since he arrived from Miami in May, 2007, Cardona, 52, has overseen 400 agents who handle criminal cases.

Under Cardona, the FBI's New York office has also forged new relationships with regulators and other federal agencies as a means of stretching manpower, he said. His agents are working with the Federal Housing Administration on mortgage fraud.

"There is tons of stuff out there," Cardona said. "But we don't have the resources to chase every collapsed hedge fund or collapsed financial institution." Cardona said.

According to FBI statistics, the bureau's budget in 2008 was about $6.8 billion. There is no allocation for greater funding in the 2009 budget, he said.


"Realistically, in the era of limited resources, the FBI in New York will strive to use the necessary resources to address the criminal activities we feel are the most important."

Criminal conduct involves a higher standard of proof to secure a conviction than the civil allegations the US Securities and Exchange Commission may file against a financial institution, so it's harder to make cases, Cardona said.

He cites the bank failure at Washington Mutual - the largest in US history - as an example of obstacles the FBI faces in showing if there was criminal wrongdoing.

"You can scratch your head and say, 'Was there criminality that happened there?'" he said. "How can that collapse? Was that mismanagement? My standard is higher than that. I have to show criminal intent. Sometimes you see a bank failure or a hedge fund collapse, and I have to see is that just a market dynamic or is something else going on."

The fall in the stock market this year didn't create the recent surge in financial crimes, Cardona said.

"Mortgage fraud was perpetrated in good times, but no one saw it," Cardona said.

"In bad times, as we are in now, you see the manifestation of the crime problem. It was there, but like the tide going out, you just didn't see until the margin calls started coming in."

The workload of Cardona's agents this week ran the gamut from an indictment in gangland slayings to working with the SEC to Bernard Madoff's alleged $50 billion Ponzi scheme. Cardona declined to discuss the Madoff case.

Under Cardona, the office had some recent high-profile white-collar prosecutions this year: in June the FBI teamed up with the SEC and prosecutors in the office of Brooklyn US Attorney Benton Campbell to bring indictments against two former Bear Stearns hedge fund managers in the first prosecution stemming from a US government probe of last year's mortgage market collapse.

In September, the same group brought indictments in a second case, against two former Credit Suisse traders accused of fraudulently selling corporate clients more than $1 billion of auction-rate securities linked to subprime mortgages.

The defendants in both cases have pleaded not guilty and are scheduled to be tried next year.

While counter-terrorism remains a top priority for the office since the terrorist attacks of September 11, 2001, Cardona said he's also cognisant of the threat white-collar fraud poses to the US economy.

"In New York, No. 1, that is terror but also my area of responsibility is any crime that undermines the confidence in our financial services industry. To me that's another top threat."