House approves financial fraud legislation to create investigatory commission

The US House of Representatives on Monday approved the Fraud Enforcement and Recovery Act, which creates a commission to investigate the cause of recent economic turmoil and allocates more resources for federal prosecutors to pursue financial fraud cases.

The measure, already approved by the Senate, was passed in the House by a vote of 338-52 and now needs the approval of President Barack Obama to become law.

The bill seeks to improve the enforcement of fraud resulting from mortgages, securities and commodities, financial institutions, and federal assistance and relief programs and to recover funds lost to such fraudulent activities.

The bill establishes a "financial crisis inquiry commission," made up of 10 people with subpoena power appointed by both the majority and minority leaders of the Senate and House.

The commission will examine "the causes of the current financial and economic crisis in the United States," as well as "the causes of the collapse of each major financial institution that failed."

The bill appropriates $165,000,000 for investigation, prosecution and civil and administrative proceedings for each of the next two fiscal years, dividing the allotment between the Federal Bureau of Investigation, the US Attorneys office and the Department of Justice.

The bill appropriates additional funds to other governmental agencies for purposes related to fraud investigations and proceedings.

The legislation also amends the False Claims Act to "reflect the original intent of the law" through the clarification of stipulations and definitions set out in the original Act.

In April, the House approved a bill which allows the Treasury Department to ban certain types of compensation at companies which receive federal bailout money from the Troubled Asset Relief Program (TARP).

In March, the House passed a bill that would tax bonuses given to employees of companies that received money from government stimulus programs at 90 percent.

The bill was drafted and voted on in reaction to large bonus payments made to employees of American International Group.

Attempts to gain control over the roiling credit markets and possible widespread bank insolvencies have included the passage in September of a $700 billion financial rescue bill, creating the TARP, which provided economic assistance to at-risk financial institutions.

(Published by Jurist - May 19, 2009)