Letter from Richard Cullen: Preparing for Financial Fraud Investigations

March 29, 2010

On Monday, March 15, 2010, federal prosecutors opened a new front in their battle against financial misconduct with the announcement of the first criminal prosecution for fraud under the Troubled Asset Relief Program (TARP). Charles Antonucci, former president of the Park Avenue Bank of New York, was arrested Monday morning and charged with embezzlement, bribery, and allegedly trying to defraud the TARP program of $11.2 million.

The charges against Antonucci were brought by prosecutors in the Southern District of New York (SDNY). Located in Manhattan and staffed by talented and aggressive attorneys, the U.S. Attorney’s Office for SDNY has long been the epicenter of federal financial prosecutions. This latest case was brought by the office’s Complex Frauds Unit, which the U.S. Attorney for SDNY launched last fall. At that time, the U.S. Attorney reported there were more than 30 prosecutors in his office targeting sophisticated white collar crime.

The SDNY is not the only U.S. Attorney’s Office that is ramping up. A series of recent statements from Neil MacBride, the U.S. Attorney for the Eastern District of Virginia (EDVA) indicate that his office is also preparing to increase its efforts in this area. MacBride has declared that his office “is aggressively pursuing financial fraud cases, especially those cases involving the more complex mortgage, securities, and investment fraud that have played a role in the economy’s downturn.”

Consistent with his words, over the last three months, MacBride has made a number of announcements concerning the expansion of his office’s capabilities to tackle financial crime. Among other things, he has re-named his Fraud Unit as the Financial Crimes Unit, named a number of new supervisors, and added additional attorneys with corporate fraud experience to the unit. MacBride described his actions as “a series of steps we are taking over the next few months to make a meaningful impact on the integrity of our government and our financial system.”

As a former U.S. Attorney for the Eastern District of Virginia, I can attest that the office has a stable of top-flight prosecutors and a proud tradition of aggressive prosecutions. The office has two additional attributes that aid it in pursuing financial misconduct. The EDVA’s proximity to the headquarters of DOJ, FBI, SEC, FDIC and SIGTARP allow the office to take advantage of all the expertise and resources available in those buildings. More importantly, the EDVA has a well-earned reputation as the “Rocket Docket.” The judges of the EDVA generally push cases forward on an extremely expedited schedule, which ordinarily provides a natural advantage to the prosecutors who control the timing of charges.

For these reasons, I expect that the EDVA will be an attractive venue for high-profile financial prosecutions as the administration implements its plan to combat financial fraud. The plan is an ambitious one. In recent months, administration officials have repeatedly declared their intention to dramatically increase prosecutions of financial crimes. In announcing the formation of a Financial Fraud Enforcement Task Force last November, Attorney General Eric Holder stated:

“In the tough economic environment we face today, one of this administration’s most important missions is to draw upon all of the resources of the federal government to fight financial fraud in all of its forms. . . . We will protect investors and our capital markets by vigorously attacking securities fraud. We will ensure that recipients of federal financial rescue funds do not obtain them through fraud, or use them for improper purposes. And we will make sure that federal stimulus funds are well-spent by vigilantly protecting the integrity of federal procurement and grant processes. By carrying out this mission aggressively and effectively, we will promote the integrity of our markets, preserve taxpayers’ resources, and protect the vast majority of consumers, investors, and companies that play by the rules and adhere to the law.”

In recent remarks at the annual ABA White Collar Crime Institute, Lanny Breuer, head of DOJ’s Criminal Division, described pursuing financial fraud as one of DOJ’s top priorities. He referred to DOJ’s “stepped-up resources and focus on financial fraud in all its forms,” including fraud connected to rescue and recovery taxpayer funds, as well as corporate, securities and commodities fraud, mortgage fraud, healthcare fraud, and foreign bribery. He warned that in an effort to tackle financial fraud with “proactive” and “innovative” enforcement, DOJ will be “more targeted, more creative, and more strategic in how and where [it] look[s] for criminal conduct,” deploying new tools not often used in white collar cases, like wiretaps and undercover agents.

The investigations on the horizon will impact individuals and businesses across a wide range of industries, and as demonstrated by the quoted remarks above, these investigations will be pursued with great vigor by the government. Moreover, private lawsuits alleging securities fraud often go hand-in-hand with government investigations, adding to the risks for those targeted.

McGuireWoods’ attorneys have handled all aspects of white collar criminal investigations and prosecutions, as well as civil matters such as securities fraud class actions, in the Eastern District of Virginia. Our past work in the courthouses of the EDVA provides us with a deep understanding of the Rocket Docket and a unique capacity to assist clients that face jeopardy in those courthouses.

More generally, McGuireWoods’ attorneys have extensive experience assisting clients facing criminal or civil actions relating to allegations of financial misconduct. Our ranks include attorneys that served in senior positions within a number of enforcement agencies, including the U.S. Attorney’s Office for the EDVA and the SEC.