Fraud Squad

Federal investigators are on a crusade to elevate corporate misdeeds to criminal offenses.

U.S. Attorney Patrick Meehan hasn’t yet caught any companies engaging in the fraudulent accounting tactics that Enron used to boost revenues. But should one turn up in the Philadelphia jurisdiction where Meehan represents the Department of Justice, well, he wouldn’t be sorry.

“I’m not wishing that there be some major corporate scandal with Eastern Pennsylvania nexus,” says Meehan, an antiterrorism expert and member of the DoJ’s newly formed Corporate Fraud Task Force. “That doesn’t mean we aren’t very aggressively scrutinizing activity in our area.”

To that end, Meehan has been changing the way he does business. For one thing, he’s getting weekly, rather than ad hoc, updates on suspicious corporate activity from his white-collar-crime expert. More important, he’s teaming with other agencies, such as the Internal Revenue Service and the U.S. Postal Service, to pursue corporate cases that have potential criminal implications. Already, he and Arthur S. Gabinet, the Philadelphia-area head of the Securities and Exchange Commission, have planned staff cross-trainings and reviewed cases of mutual interest.

Meehan is hardly alone in tightening his scrutiny. While the 93 Presidentially appointed U.S. Attorneys who represent the DoJ nationwide have broad discretion in choosing cases, it’s hard for them to ignore the fact that their bosses have put revenue inflation and expense miscapitalization on a par with terrorism and drug pushing. “When financial transactions are fraudulent and balance sheets are falsified, the invisible hand that guides our markets is replaced by a greased palm,” said Attorney General John Ashcroft as he pressed charges against WorldCom executives last August. “Corporate executives who cheat investors, steal savings, and squander pensions will meet the judgment they fear and the punishment they deserve.”

Beyond the rhetoric, the federal government has taken unprecedented measures to strengthen its corporate fraud-fighting resources. Before last summer, there was no “home” for such cases within the DoJ, which relied on its various subdivisions, including the FBI, securities-fraud and white-collar-crime units, and local U.S. Attorneys, to handle them on an as-needed basis. Now the inter-agency Corporate Fraud Task Force, formed last July, is coordinating investigations into alleged misconduct at such major firms as Adelphia Communications Corp. and Qwest Communications International Inc., and equipping local staffs with the resources and expertise they need to hasten indictments. President Bush’s proposed budget, meanwhile, offers $24.5 million to the cause, some of which will be used to hire 88 new staff members in the U.S. Attorneys’ offices and 118 new workers at the FBI.

Add to these moves the public outrage at Enron and WorldCom officials, and no wonder prosecutors like Meehan feel compelled to jump on business-fraud cases. “Until now, most [U.S. Attorneys'] offices outside the major metropolitan centers haven’t had the resources or experience to take these cases on,” says John Falvey, a former assistant U.S. Attorney and now a white-collar defense attorney in Boston. “Thanks to the political climate, though, every office is now looking to make them.”


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