Sen. Patrick J. Leahy Holds a Hearing On Financial Collapse Prosecutions

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Sen. Patrick J. Leahy Holds a Hearing On Financial Collapse Prosecutions

SENATE COMMITTEE ON THE JUDICIARY HOLDS A HEARING ON FINANCIAL COLLAPSE PROSECUTIONS

DECEMBER 9, 2009

SPEAKERS: SEN. PATRICK J. LEAHY, D-VT. CHAIRMAN SEN. HERB KOHL, D-WIS. SEN. DIANNE FEINSTEIN, D-CALIF. SEN. RUSS FEINGOLD, D-WIS. SEN. CHARLES E. SCHUMER, D-N.Y. SEN. RICHARD J. DURBIN, D-ILL. SEN. SHELDON WHITEHOUSE, D-R.I. SEN. BENJAMIN L. CARDIN, D-MD. SEN. RON WYDEN, D-ORE. SEN. AMY KLOBUCHAR, D-MINN. SEN. EDWARD E. "TED" KAUFMAN, D-DEL. SEN. ARLEN SPECTER, D-PA. SEN. AL FRANKEN, D-MINN.

SEN. JEFF SESSIONS, R-ALA. RANKING MEMBER SEN. ORRIN G. HATCH, R-UTAH SEN. CHARLES E. GRASSLEY, R-IOWA SEN. JON KYL, R-ARIZ. SEN. LINDSEY GRAHAM, R-S.C. SEN. JOHN CORNYN, R-TEXAS SEN. TOM COBURN, R-OKLA.

WITNESSES: LANNY BREUER, ASSISTANT ATTORNEY GENERAL

ROBERT KHUZAMI, DIRECTOR, SECURITIES AND EXCHANGE COMMISSION'S DIVISION OF ENFORCEMENT

KEVIN PERKINS, ASSISTANT DIRECTOR, FEDERAL BUREAU OF INVESTIGATION

[*] KAUFMAN: I call the committee to order. Good afternoon, everyone. I'm honored to call this hearing of the Senate Committee on Judiciary, and I thank Chairman Leahy for permitting me to chair this hearing.

Today, we're going to examine the contributions of financial fraud to our current economic crisis and to explore the efforts of law enforcement to bring out what happened, and bring the perpetrators to justice. I really mean this when I say, three distinguished witnesses join us today to discuss these issues: Assistant Attorney General Lanny Breuer, SEC Director of Enforcement Robert Khuzami, and Assistant Director Kevin Perkins of the FBI.

Between the spring of 2007 and this past summer, the net worth of the United States households dropped $14 trillion. That's T -- $14 trillion, with a T. Of course, an economic collapse of that magnitude was spurred by a wide spectrum of activity. Much of that behavior, though terribly misguided, and indeed excusable, was not criminal. The honest homebuyer -- who, enticed by the promise of perpetually rising home prices, took out a mortgage that he could not really afford -- may have shown bad judgment, but did not break the law. In all likelihood, neither did the investment manager, who lost a great deal of his client's money because she failed to appreciate the full extent of the risk caused by mortgage-backed securities. On the other end (ph) of the spectrum, however, was chronic (ph), that has all the earmarks of financial crime -- I'm talking about loan originators who encouraged borrowers to lie on loan applications; or middleman and banks who knew that loans were bad but accepted them anyway; from bundling and reselling in securities; or investment banks that stuck with toxic assets as housing prices began to plummet; consciously failed to disclose their true value or their risks to shareholders. These people should be the target of the FBI and SEC and DOJ investigations, and, if convicted, they should go to jail.

If we want to restore the public's faith in our financial markets and the rule of law, we must identify, prosecute, and send to prison the participants in those markets who broke the law. Their fraudulent conduct has severely damaged our economy and harmed countless hard- working Americans. That is why, last May, I joined with Chairman Leahy, Senator Grassley and others, to help pass the Fraud Enforcement and Recovery Act.

FERA was an instrumental in ensuring that additional tools and resources were provided to those charged with enforcement of our nation's laws against financial fraud. Since the passage of FERA, some real progress has been made, thanks to the men in this room. The FBI, Department of Justice and SEC have all redoubled their efforts and redeployed their resources. Just last month, President Obama created an interagency Financial Fraud Enforcement Task Force. His decision to do so reflects the fact that mortgage securities and corporate fraud schemes not only devastate our economy, but also have led to the widespread view that Wall Street does not play by the same rules as Main Street.

I'm pleased to see the task force mission is not just to hold accountable those who help bring this (ph) financial crisis, but also help to prevent another crisis from happening. We must deter those in the mortgage industry, on the trading desks, in the boardrooms, who, in the future, might be tempted to put greed ahead of the law, thus setting the stage for another meltdown.

Of course, deterrence comes from successful investigation, prosecution, and then meaningful punishment. And success...

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