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By Robert Schmidt
June 19 (Bloomberg) -- Federal prosecutors have charged more than 400 people across the U.S. in a crackdown against mortgage fraud, as the government stepped up efforts to address the subprime loan crisis.
FBI Director Robert Mueller and Deputy Attorney General Mark Filip said the campaign, called Operation Malicious Mortgage, was designed to send a message that housing crime is a national problem. Almost 300 people have been arrested since March in such major cities as Chicago, Dallas and Miami.
``The Department of Justice is determined to detect and to punish mortgage fraud and to help restore the stability and confidence in our housing and credit markets,'' Filip said at a press conference in Washington.
Separately, the government today unsealed an indictment against two former managers of Bear Stearns Cos. hedge funds whose collapse helped ignite the subprime meltdown. The crisis has forced hundreds of thousands of people from their homes through foreclosures and triggered almost $400 billion in losses and writedowns on Wall Street.
While the government has been probing mortgage fraud for years, today's announcement underscored it has become more widespread.
The increase in subprime lending created a ``fertile environment for all kinds of things, including outright fraud,'' said Nicolas Retsinas, director of the Joint Center for Housing Studies at Harvard University. Criminal activity is ``one more reason why investors and lenders will continue to have suspicions about the valuations of their investments and loans.''
$1 Billion Lost
The roundup announced today began three months ago and authorities estimate victims lost more than $1 billion as a result of the frauds. The schemes include cheating lenders, swindling those facing foreclosure and filing fraudulent bankruptcy claims, officials said. Among those indicted were real-estate agents, lawyers, appraisers and borrowers.
While the operation focused on individual cases and smaller crime rings, officials said they are also probing 19 companies, including investment banks and hedge funds, that may have engaged in accounting fraud or other white-collar crimes related to mortgage securities.
``We recognize that these corporate fraud cases will increase in numbers due to an enhanced level of regulatory and internal audit reviews by many of these Wall Street firms, and we will address these cases as they are identified,'' Mueller said.
Bear Stearns
In the Bear Stearns case -- one of the 19 -- the ex-hedge- fund managers were arrested today after being indicted by a federal grand jury in Brooklyn. They face conspiracy, wire fraud and securities fraud charges for allegedly telling investors that the funds they oversaw were stable when they actually were near collapse.
Along with the 19 securities cases, the Federal Bureau of Investigation has about 1,400 pending mortgage fraud cases, many related to subprime loans made to people with poor credit, Mueller said.
The FBI has struggled to keep pace with the growing number of mortgage cases and earlier this month ordered 26 of its 56 field offices to stop opening some financial fraud investigations so agents could focus on the subprime crisis.
Still, Filip said that the Justice Department wouldn't ask Congress for more money to fight mortgage fraud.
``We think we give enormous value to the taxpayers with the resources that we're given,'' he said. ``We're going to work as hard as possible with what we have.''
The cases announced today include a 51-count indictment in Dallas where 11 people were accused of using phony buyers to obtain inflated loans. The alleged fraud ring, which included appraisers and mortgage brokers, would then deliberately default on the loans and keep most of the money.
In Chicago, U.S. Attorney Patrick Fitzgerald announced charges in about a dozen new mortgage fraud cases. In one case filed June 17, a local businessman was accused of stealing about $1.9 million, also by getting loans for purchasers who didn't intend to occupy the properties.
To contact the reporter on this story: Robert Schmidt in Washington at rschmidt5@bloomberg.net.
Last Updated: June 19, 2008 16:12 EDT
