Despite an expected wave of fraud in the trillion-dollar bailout that aims to stop the ongoing financial meltdown, federal law enforcement officials told Congress on Wednesday that they have nowhere near the level of resources to combat it.

Top FBI and Justice Department officials said they believed mortgage fraud and other types of corporate criminal behavior has contributed to the economic tailspin. And they said they already have more than 2,300 open investigations into suspected illegal financial activity -- including 38 probes specifically linked to the crisis.

Those investigations are already straining the resources of the FBI and the Justice Department, FBI Deputy Director John Pistole and Acting Assistant Atty. Gen. Rita Glavin said in testimony before the Senate Judiciary Committee.

But the problems will worsen exponentially as the economy plunges, and as the Obama administration and Congress spend more than $1 trillion in various bailout and stimulus packages in an effort to forestall foreclosures, corporate bankruptcies and a prolonged economic depression, they said.


Pistole said he expected the number of major investigations to rise into the many hundreds, focusing on big-name companies that “everybody knows about,” and to be similar in scope and complexity to the massive probe of energy company Enron Corp. after its collapse in 2001.

In the meantime, the wholesale redeployment of federal agents and prosecutors to counter-terrorism work after the Sept. 11, 2001, attacks has depleted the ranks of financial specialists needed to investigate such cases and bring perpetrators to trial, Pistole said.

The FBI has only 240 agents working on mortgage fraud cases, a fraction of the agents working on the savings and loan failures in the 1980s, Pistole said, adding that the current crisis “obviously dwarfs” the previous one.

The sheer volume of cases is so overwhelming, he said, that agents can focus only on those “systematically trying to defraud the system,” including lawyers, brokers and real estate professionals.


Pistole noted that former FBI Assistant Director Chris Swecker warned Congress in 2004 about the looming crisis posed by fraudulent mortgage practices.

The FBI is now doing a “complete scrub” to find ways of redeploying agents to work on financial fraud cases, and is trying to hire and train more people capable of conducting such complex and long-term investigations, Pistole said.

In the meantime, “We need the bodies there,” Pistole said. “It is a huge problem that we look forward to addressing as robustly and as aggressively as we can.”

Neil Barofsky, the inspector general of the government’s financial rescue package, told the panel that making an example of some high-profile lawbreakers is the best use of the government’s limited resources.


“They have the most to lose, they’re the most likely to flip, and they make the best examples,” Barofsky said.

Three senators on the Senate Judiciary Committee, which oversees the Justice Department and the FBI, have sponsored legislation to provide federal authorities with additional funds and some stronger laws to go after mortgage cheats and other financial scammers.

One of them, Chairman Patrick J. Leahy (D-Vt.), told the FBI and Justice Department officials that he wanted to see people prosecuted and sent to jail.

In an interview after the hearing, Leahy said he was dismayed to learn how few FBI agents were being deployed to investigate financial fraud cases, but that his committee would “make sure there are enough people out there to start catching and prosecuting people.”


“They will be more aggressive in the future, I can assure you,” Leahy said. “This committee is going to keep the pressure on.”

--

josh.meyer@latimes.com