By Zachary A. Goldfarb
Two key senators yesterday decried the government's commitment to investigating financial crimes as inadequate and proposed spending $110 million to hire hundreds more officials to pursue white-collar criminals.
Senate Banking Committee members Charles E. Schumer (D-N.Y.) and Richard C. Shelby (R-Ala.) said they are introducing a bill to hire 500 new FBI agents, 50 new assistant U.S. attorneys and 100 new Securities and Exchange Commission enforcement employees to go after perpetrators of financial crimes that have contributed to the nation's economic crisis.
The proposals come after the SEC failed to detect a $50 billion financial fraud allegedly perpetrated by famed money manager Bernard L. Madoff and questions have surfaced over whether federal authorities have enough resources to carry out the bevy of investigations that have been started in the wake of the financial crisis.
Compared with the hundreds of billions of dollars the government is spending to bail out the financial sector, the amount of money the senators want to direct toward enforcement appears modest. But so far, authorities have brought few cases against those involved in the financial crisis. The most prominent have included the arrest of two Bear Stearns executives accused of allegedly misleading investors about the state of the firm's two largest hedge funds and financial settlements involving banks, the SEC and state attorneys general over the marketing of auction-rate securities, a type of exotic bond.
"Our white-collar crime divisions are under-staffed, under-funded, and overwhelmed," Schumer said. "Bernie Madoff may very well be just the tip of the iceberg. The ongoing financial crisis is likely to expose more bad actor -- and our white-collar crime divisions are not equipped to root them out or prosecute them."
Schumer said the FBI has failed to replace thousands of FBI agents who were transferred to counterterrorism squads out of financial crimes units and other areas. The senators said that U.S. attorney's offices have been subject to hiring and budget freezes, and that the few limited resources have been used to strengthen enforcement related to online crime, immigration and gangs. The number of prosecutions involving alleged financial frauds declined 48 percent, they said.
Schumer said Congress should repeat its actions after the savings and loan crisis nearly 20 years ago, when it authorized $75 million to hire more FBI agents and prosecutors, an effort that he said has yielded more than 600 convictions and $130 million in fines.
Shelby said the new money "will help, in some way, to restore some trust in our markets and confidence in our government."
The senators said that the measure would be only a piece of a larger effort being made to address the financial crisis, including a broad revamping of the regulatory system this year and congressional hearings on a variety of failures at regulatory agencies.