Compliance, risk, and legal professionals that are not already familiar with the new Task Force on Market Integrity and Consumer Fraud should get up to speed, and fast.
The striking scope of the entity’s powers alone is significant. A presidential executive order, issued July 11, mandates that it should “provide guidance for the investigation and prosecution of cases involving fraud on the government, the financial markets, and consumers—including cyber-fraud and other fraud targeting the elderly, service members, and veterans, and other members of the public; procurement and grant fraud; securities and commodities fraud, as well as other corporate fraud, with particular attention to fraud affecting the general public; digital currency fraud; money laundering, including the recovery of proceeds; health care fraud; tax fraud; and other financial crimes.”
The variety of federal agencies and senior Justice Department officials who sit on the task force further put a spotlight on the breadth of its enforcement powers. Sitting beside the deputy attorney general as chair and the associate attorney general as vice chair are heads of the Justice Department’s Criminal, Civil, Tax, and Antitrust Division, as well as the director of the Federal Bureau of Investigation. The executive order further mandates that the chair designate other U.S. attorneys to serve as members, as well as other “officers or employees of the Department of Justice as the Attorney General may from time to time designate.”
The executive order further calls on the attorney general to invite the participation of senior officials from 22 other executive departments and agencies, including the director of the Consumer Financial Protection Bureau (CFPB), chair of the Federal Trade Commission, chair of the Securities and Exchange Commission, and prudential banking regulators such as the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation.
The sheer scope of its powers and the breadth of its participants is a good reason for compliance, legal, and risk professionals to keep its developments front and center. “This new task force on Market Integrity and Consumer Fraud will allow us to do even more in a coordinated way,” Deputy Attorney General Rod Rosenstein said during a press conference announcing the task force.
“By working together, we can achieve more effective and more efficient deterrents. Drawing on our pool of resources—including subject-matter expertise, data repositories, and analysts and investigators—we can identify and stop fraud working together on a wider scale than any one of us can do alone.”
Deputy Attorney General Rod Rosenstein
“By working together, we can achieve more effective and more efficient deterrents,” Rosenstein added. “Drawing on our pool of resources—including subject-matter expertise, data repositories, and analysts and investigators—we can identify and stop fraud working together on a wider scale than any one of us can do alone.”
The task force aligns with the Justice Department’s new policy, announced in May, that encourages coordination internally and with other enforcement agencies when imposing multiple penalties equivalent conduct. “We seek to avoid what businesses often refer to as ‘piling on.’ We should discourage disproportionate and duplicative penalties imposed by multiple authorities,” Rosenstein explained in a keynote address at Compliance Week 2018. “Our new policy discourages ‘piling on’ by instructing Department components to appropriately coordinate with one another, and with enforcement agencies throughout the United States and overseas, to attempt to seek an equitable outcome in joining parallel investigations of the same misconduct. We incorporated that policy into our U.S. Attorneys’ Manual, so that all federal prosecutors will be governed by it.”
In announcing the task force, Rosenstein said that one of its first priorities “will be to survey all of our members and identify areas of vulnerability to ensure that we devote appropriate resources.” That being said, although it’s still too early to know for sure the exact focus of the task force or what direction it will take, plenty of clues can be gathered from the public statements made by officials at the Justice Department and other task force-member agencies.
The overall theme is that the task force will build on the past efforts of the Financial Fraud Enforcement Task Force (FFETF), established under the Obama administration. As mandated by President Trump’s executive order, the task force explicitly takes the place of the FFETF. Instead, the task force is “an expansion of the anti-fraud efforts of that task force,” said Acting Associate Attorney General Jesse Panuccio, in response to questions following the press conference.
The FFETF, created in the wake of the financial crisis, focused specifically on financial crimes and fraud. “We are going to roll that in,” Panuccio said. “That will be part of the focus, but I think this is a broader effort looking at other areas of consumer fraud and market integrity. That task force was a moment in time. This is a larger effort.”
The collective message coming from the heads of these agencies is a stronger, coordinated focus on consumer fraud. CFPB Acting Director Mick Mulvaney in his remarks highlighted the Bureau’s new initiative to address elderly financial exploitation by expanding its collaboration with individual attorneys general. The task force, he said, “will build on things we have done in just the last several months.”
Mulvaney also emphasized in his remarks that the Bureau will continue to cooperate with other federal and state authorities to combat fraud. “Interagency cooperation is incredibly important for these complex issues, as criminals do not stay neatly within state lines or even national borders,” he said. “The recent settlement with Wells Fargo is a great example of the Bureau coordinating closely with sister regulators to remedy legal violations.”
The FTC said it similarly remains focused on elder fraud, as well as fraud that targets service members and veterans. FTC Chairman Joe Simons said the agency “routinely partners” with federal and state agencies through its Criminal Liaison Unit, which refers cases for criminal prosecution of consumer fraud to the Justice Department and criminal law enforcement agencies across the country. “The FTC looks forward to further collaboration with the Department of Justice and other agencies through participation in this Task Force, so we can leverage our skills and resources,” Simons said.
Another enforcement focus, as indicated by the SEC, is retail fraud. “At the SEC, we work every day to protect Main Street investors,” said SEC Chairman Jay Clayton. “This task force will allow us to build on the close partnerships we have with our fellow regulators and law enforcement agencies to deter and combat retail fraud.” Specific examples of the types of misconduct that most affect retail investors—and, thus, what the SEC has its sights on—include microcap “pump and dump” frauds, Ponzi schemes, and the sales of unsuitable complex products, “which frequently target the most vulnerable members of the investing public,” according to the SEC.
Clayton cited an example in which the SEC’s Enforcement Division in July 2017 charged 13 individuals for their involvement in cold-calling scams that bilked more than one hundred victims out of more than $10 million through high-pressure sales tactics and lies about penny stocks. “In this action, we worked with federal criminal authorities, FINRA, and state and foreign securities regulators to bring an end to the alleged fraud,” Clayton said.
As a general matter, any task force established under the Department of Justice should stay top of mind. If the enforcement activity arising from other task forces, like the Healthcare Fraud Prevention and Enforcement Action Team (HEAT), are any indication of similar enforcement activity to come, companies will want to be prepared. “The financial services, government contracting, and healthcare sectors could see similar activity stemming from the Market Integrity and Consumer Fraud Task Force,” a client alert from Holland & Knight states.
The inter-agency focus of the task force makes it even more important that legal, compliance, and risk functions assess their risks. “Your organization should consider setting up its own task force,” says Alan Brill, a senior managing director with Kroll’s cyber-risk practice. Gather input from compliance, risk, legal, IT, operations, procurement, HR, and “look at the risk that is facing your industry and your organization,” he says.
As the attorney general moves forward with recommendations to the president, as mandated by the executive order, “concerning changes in rules, regulations, or policy, or recommendations to the Congress regarding legislative measures, to improve the effective investigation and prosecution of fraud and other financial crimes,” input from the private sector may be necessary.
“It’s important that a task force like this has a way of bringing in the private sector,” Brill says, “so that they can both offer their experience and recommendations and help to review ideas that may be developed within the task force that could result in legislative or regulatory changes.”