Obama Signs Fraud Enforcement and Recovery Act in Effort to Combat Mortgage and Financial Fraud

The Fraud Enforcement and Recovery Act ("FERA"), signed by President Obama on May 20, 2009, provides federal law enforcement with additional resources to combat mortgage and financial fraud.  FERA also amends federal law to authorize, for the first time, mortgage fraud prosecutions even when the victim institutions are not federally insured.  Under the new law, federal prosecutors will also have authority to prosecute anyone who fraudulently obtains American Recovery and Reinvestment Act ("Recovery Act") or Troubled Asset Relief Program ("TARP") funds.  The key provisions of the new law are as follows:

Doubles FBI Mortgage and Financial Fraud Program – Allocates $75 million for the FBI in the next two years to expand its mortgage and financial fraud programs.  These funds will allow the FBI to hire approximately 190 additional special agents and more than 200 professional staff and forensic analysts.  With this additional funding, the FBI is expected to double its mortgage fraud task forces nationwide, from 26 to more than 50.

Increases the Number of Financial Fraud Prosecutors – Authorizes $50 million per year in additional funding for U.S. Attorneys' Offices to staff financial fraud units and an additional $40 million per year to the Department of Justice's criminal, civil and tax divisions to staff criminal and civil cases involving financial fraud.

Enhances HUD, Postal Service and Secret Service Fraud Units – Authorizes an additional $80 million per year for investigators and analysts employed by the Office of the Inspector General for the Department of Housing and Urban Development, the U.S. Postal Inspection Service and the U.S. Secret Service to combat fraud involving federal assistance programs and financial institutions.

Amends Fraud Statutes to Apply to Private Mortgage Lenders – Revises federal statutes, such as mail and wire fraud statutes, to encompass fraud committed against private mortgage lenders, even though the lenders are not federally insured institutions.  Such institutions account for nearly half of the residential mortgage market but were previously not covered by traditional federal fraud statutes.

Expands Fraud Statutes to Cover TARP and Recovery Act Funds – Authorizes prosecution of those who commit fraud or make false statements in connection with money or funds sought or obtained under either TARP or the Recovery Act.

Broadens the False Claims Act – Clarifies and expands the scope of the federal False Claims Act, which is used both by the government and private whistleblowers to pursue civil fraud recovery cases involving false claims made to the federal government.  FERA makes it clear that such cases may be filed even when a false claim is not presented directly to a federal official or the federal government does not have title to the money or funds at stake.

Creates Financial Crisis Inquiry Commission – Establishes an independent, bipartisan commission to investigate the causes and factors leading to the current financial crisis.  The commission, which will be composed of 10 members with significant experience in financial markets, banking and the housing industry, will hold hearings and have subpoena power to compel testimony and production of records.  The commission is to submit a report to the president and Congress by December 15, 2010 with its findings regarding the causes of the current economic crisis.