Friday, May 25, 2012

Mortgage-Backed Securities Working Group Sets Up Whistleblower Hot Line; SEC Enforcement Director Details Efforts

The Residential Mortgage-Backed Securities Working Group has launched a whistleblower website to report fraudulent activities in the mortgage-backed securities market. The Working Group wants to hear from people who worked in the RMBS market who acted responsibly but who also may have witnessed greed and misconduct that crossed the legal line and created havoc for investors and the economy. 

The SEC’s Office of the Whistleblower said that the Working Group is particularly interested in information about residential mortgage-backed securities fraud from corporate insiders who worked in the industry and witnessed the misconduct.  Fraud can be hard to uncover without help from whistleblowers who were corporate insiders, noted the SEC, adding that the Working Group has the ability to pursue fraud even when it occurred several years ago. 

The Residential Mortgage-Backed Securities Fraud Working Group is part of the Financial Fraud Enforcement Task Force, which was set up by President Obama in November 2009 to hold accountable those who helped bring about the financial crisis as well as those who would attempt to take advantage of the efforts at economic recovery.The RMBS Working Group is a collaborative effort led by five co-chairs including the SEC Enforcement Director and state and federal prosecutors. The Working Group and its members are focused on investigating potential false or misleading statements, deception or other misconduct by market participants in the creation, packaging and sale of mortgage-backed securities.

The RMBS website is a new call to those insiders who know about fraud that occurred in the RMBS market, who know it's time to expose that fraud, and who want to help the Working Group hold accountable those individuals and institutions who broke the law in pursuit of bigger paydays,  said Acting Associate Attorney General Tony West.  He added that whistleblowers enjoy legal rights that protect their ability to speak out without the fear of retaliation.  He pledged that the Working Group will do everything it can to maintain the confidence and trust of whistleblowers  who come forward.

The approach to RMBS investigations is systematic and smart, noted Co-Chair and SEC Enforcement Director Robert Khuzami, with cross-agency teams comprised of experienced prosecutors and investigators utilizing market experts and risk-based criteria to triage transactions for review, and bringing to bear the entire palette range of state and federal legal theories and remedies.  The SEC Director said that the numbers reveal the Working Group’s effort and commitment, with the SEC alone bringing to the effort more than 40 SEC staff from eight offices trained in securitized products. 

The SEC teams bring substantial ongoing investigatory work to the effort as well.  Since 2010, he observed, the SEC has issued over 300 subpoenas or document requests resulting in more than 30 million pages of documents with interviews or sworn testimony taken from over 180 witnesses, all focused on whether firms failed to disclose important information when selling residential mortgage-backed securities.