Fraud Squad

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

At the same time, the Task Force is also helping offices clear out backlogs of older cases and deploying resources to take on smaller cases. In December, the U.S. Attorney’s Office in Tulsa completed a four-year investigation into now-defunct Commercial Financial Services Inc., thanks to additional staff from the DoJ’s Washington, D.C., office. In several districts, including the Southern District of New York and the Central District of California, a number of formerly unknown executives have been indicted for frauds involving relatively small amounts of money. U.S. Technologies Inc. chairman and CEO C. Gregory Earls, for one, is facing up to 50 years in jail and $3 million in fines for bilking investors out of $13.8 million.

In addition, at the Task Force’s urging, DoJ officials have demonstrated a newfound willingness to bring partial cases and add charges later. That helps explain why Enron executives have been charged in such a piecemeal fashion, starting last August with Michael Kopper and continuing most recently with two accounting managers involved with the company’s Braveheart scheme. That strategy also lends logic to why Kmart managers were charged with prematurely booking $42 million of vendor allowances as revenue in February, when the company’s own investigation turned up some $92 million in such improper allocations.

A Task Force Approach

The biggest weapon the Task Force has in combating fraud, however, may be the closer ties it is forging with other agencies. The group of 17, formed by President Bush last July and headed by Deputy Attorney General Larry D. Thompson, includes seven U.S. Attorneys, like Meehan, from major metropolitan areas, plus FBI head Robert Mueller, SEC chairman William H. Donaldson, and Labor Secretary Elaine L. Chao, among others. As an interagency team, the Task Force’s criminal authorities have easier access to corporate cases, as well as the topical expertise the Task Force needs to prosecute.

The group meets whenever necessary to discuss ways to leverage resources. “If you’re all sitting around a table, it’s much easier to get that tag-team help,” says U.S. Attorney for the Central District of California Debra W. Yang, whose district led the nation with charges against 483 white-collar defendants last year. She says her manpower temporarily tripled on one recent case after she mentioned it to Mueller.

Such cooperation between the SEC and the DoJ has long been a factor in several regions known for high-profile corporate-fraud cases, but the Task Force is broadening and deepening that relationship. Besides working with Donaldson and Stephen Cutler, the SEC’s head of enforcement in Washington, D.C., the DoJ has been tapping regional SEC officials with unprecedented frequency and eagerness. “I feel like a prom queen, I’ve been pinned by so many U.S. Attorneys who want to work with me,” says Harold F. Degenhardt, SEC district administrator in Fort Worth, referring to the six DoJ pins that have graced his lapel as a result of recent meetings with prosecutors.


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