Attorney General Eric Holder announces the formation of the Residential Mortgage-Backed Securities Working Group, Friday, Jan. 27, 2012, during a news conference at the Justice Department in Washington. President Barack Obama directed Holder to collaborate with several state attorneys general and other federal entities to investigate those responsible for misconduct contributing to the financial crisis through the pooling and sale of residential mortgage-backed securities. This working group will be operated out of the President's Financial Fraud Enforcement Task Force, which is chaired by Holder. (AP Photo/Cliff Owen)
Attorney General Eric Holder announces the formation of the Residential Mortgage-Backed Securities Working Group, Friday, Jan. 27, 2012, during a news conference at the Justice Department in Washington. President Barack Obama directed Holder to collaborate with several state attorneys general and other federal entities to investigate those responsible for misconduct contributing to the financial crisis through the pooling and sale of residential mortgage-backed securities. This working group will be operated out of the President's Financial Fraud Enforcement Task Force, which is chaired by Holder. (AP Photo/Cliff Owen)
New York Attorney General Eric Schneiderman speaks at the Justice Department in Washington, Friday, Jan. 27, 2012, following Attorney General Eric Holder's announcement of the formation of the Residential Mortgage-Backed Securities Working Group. (AP Photo/Cliff Owen)
Securities and Exchange Commission (SEC) Director of Enforcement Robert Khuzami speaks at the Justice Department in Washington, Friday, Jan. 27, 2012, following Attorney General Eric Holder's announcement of the formation of the Residential Mortgage-Backed Securities Working Group. (AP Photo/Cliff Owen)
After announcing the formation of the Residential Mortgage-Backed Securities Working Group Attorney General Eric Holder looks on at left as Housing and Urban Development Secretary Shaun Donovan speaks at the Justice Department in Washington, Friday, Jan. 27, 2012. (AP Photo/Cliff Owen)
Attorney General Eric Holder pauses during a news conference at the Justice Department in Washington, Friday, Jan. 27, 2012, where he announced the formation of the Residential Mortgage-Backed Securities Working Group. (AP Photo/Cliff Owen)
WASHINGTON (AP) ? Federal and state law enforcement officials announced Friday they have launched a fraud-fighting unit, starting with 55 prosecutors and investigators, to root out wrongdoing in the market for residential mortgage-backed securities.
Attorney General Eric Holder told a news conference the team will benefit from existing probes and disclosed that investigators have issued civil subpoenas to 11 financial institutions in recent days, with the prospect that "more will follow." He said bringing full enforcement resources to bear will help expose abuses and hold violators accountable.
Residential mortgage-backed securities are the huge investment packages of what turned out to be near-worthless mortgages that bankrupted many investors and contributed to the nation's financial crisis.
The new effort was disclosed Tuesday night in the State of the Union address by President Barack Obama. The president has been criticized by some in his own party who have said that, despite a federal bailout of large Wall Street institutions begun under President George W. Bush, no Wall Street executives have gone to prison for fraudulent conduct in the mortgage meltdown and financial crisis.
Appearing with Holder, New York Attorney General Eric Schneiderman, a co-chair of the initiative, held out the prospect that information sharing between federal and state investigators will produce more far-reaching results. He pointed out that New York state securities law is more flexible than federal securities law, which can make it easier to assemble cases.
As for those who engaged in misconduct in the financial industry, "we know what they did, they know what they did and, we know they know we know what they did," said Schneiderman. Last August, because of his tough stance opposing any deal that would end investigations of wrongdoing, Schneiderman was removed from a committee of state attorneys general negotiating a nationwide foreclosure settlement with U.S. banks.
"Mortgage products were in many ways ground zero for the financial crisis," said Robert Khuzami, director of the enforcement division at the U.S. Securities and Exchange Commission.
The collapse in value of mortgage-backed securities resulted in unprecedented losses, and "all of us" in law enforcement are dedicated to holding accountable financial institutions that lied and cheated and misled investors, said Khuzami.
Asked about the financial crisis in a CBS "60 Minutes" interview in December, Obama said that "some of the most damaging behavior on Wall Street ? in some cases some of the least ethical behavior on Wall Street ? wasn't illegal. That's exactly why we had to change the laws." Obama obtained a major new financial regulation law from Congress in July 2010.
In Friday's news conference at the Justice Department, reporters were handed a two-page list of 13 successful criminal prosecutions and civil cases involving the Financial Fraud Enforcement Task Force, which the new unit is part of. Prison terms ranged from five years to 30 years for criminal activity at hedge funds, a mortgage company and a bank. The longest prison term was 50 years, for a lawyer in a $1.2 billion Ponzi scheme.
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