Legal News

Fraudsters Beware, Bharara?s Throwing More Forces Your Way

By Amir Efrati

If it isn't clear from recent events (Galleon, anyone?) that the U.S. attorney's office for the Southern District of New York is serious about fraud, here's another clue.

This morning the U.S. attorney, Preet Bharara (pictured), announced the formation of a so-called civil-frauds unit to combat a plethora of wrongs, from health-care and bank frauds to mortgage and pharmaceutical frauds.

The U.S. attorney's civil division traditionally has represented federal agencies in civil cases in which they are being sued or are a party, such as the Internal Revenue Service in the Lehman Brothers bankruptcy. In so-called affirmative cases, civil-division lawyers have punished violators of federal laws, such as Yankee Stadium for not complying with the Americans with Disabilities Act.

Now Bharara says a team of six civil-frauds prosecutors will punish fraudsters faster, preventing them from inflicting further damage. For example, civil prosecutors could work quickly to file lawsuits that seek to freeze defendants' assets. That might buy more time for criminal prosecutors to investigate the matter, and whose cases have a higher burden of proof and could take much longer to prepare. (Civil prosecutors are walled off from criminal grand-jury investigations, and we're not implying both sets of prosecutors would work hand in hand.)

Later, the civil prosecutors could recover money through civil penalties and so-called "treble damages."

The civil prosecutors could also obtain judgments that would force reforms at companies or organizations whose members are engaged in wrongdoing, as they did with unions that were infiltrated with organized crime elements during the 1980s, the U.S. attorney's office said.

A recent development will aid civil prosecutors, the U.S. attorney's office said. DOJ recently announced that civil prosecutors from local U.S. attorney's offices could issue so-called civil investigative demands – akin to grand-jury subpoenas for criminal prosecutors – to call people to testify under oath or compel production of documents. Previously, such demands had to be approved by DOJ officials in Washington.

Full post as published by Law Blog - WSJ.com on March 31, 2010 (boomark / email).