President Barack Obama announced, during his recent State of the Union Address, that his administration plans to aggressively pursue crimes that led the United States into the crippling housing crisis in 2008 by appointing a new mortgage fraud task force. President Obama stated, “This new unit will hold accountable those who broke the law, speed assistance to homeowners and help turn the page on an era of recklessness that hurt so many Americans.” The Residential Mortgage-Backed Securities Working Group will be overseen by the SEC and the Justice Department, whose track record in investigating past unscrupulous lending practices has not been very successful. Several criminal investigations followed the mortgage crisis, but most did not go anywhere because, as Obama says, the conduct may have been reckless, but was not illegal. Nonetheless, this latest task force provides evidence that the administration wants some accountability—and results.
This new accountability augers toward more than just the 25 cases the SEC has filed since 2009. And it means more than just window-dressing. While typical punishment for criminal fraud includes barring CEOs from director positions (for a limited amount of time) or monetary penalties, most reckless executives are still keeping the compensation that they received during the run-up to the crisis, and the penalties are typically being paid by the companies—the shareholders, and not the individual reckless executive.
A roadmap has been provided for this new task force from private litigants. Several have been successful in revealing unscrupulous practices, including in depositions of a Bear Stearns’ executive who had knowledge of the toxic risks or from another executive who said that Bear Stearns did not do its due diligence in evaluating its vendors. With the recent guilty plea of two Credit Suisse bond traders to fraudulent manipulation of bond valuations, perhaps the new Residential Mortgage-Backed Securities Working Group will begin an era of corporate executive accountability for the roles they played in crashing global markets.