Department of Justice Seal

Transcript of Deputy Attorney General Paul J. McNulty
at the Press Conference on Bankruptcy Fraud

Washington, D.C.

October 18, 2006

1:34 P.M. EDT

DEPUTY ATTORNEY GENERAL McNULTY: Good afternoon. I apologize for keeping you waiting and thank you for your patience. I'm Paul McNulty, the Deputy Attorney General, and with me is Cliff White, the Acting Director of the Executive Office for U.S. Trustees, and Chip Burrus, the Assistant Director for Criminal Investigations Division of the FBI.

We are here today to mark the anniversary of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, and we're announcing the results of a major crackdown on bankruptcy fraud.

Over the past two months, the Department of Justice has charged more than 78 defendants in 36 districts with bankruptcy fraud and related counts, including 15 indictments and three criminal complaints just yesterday.

This initiative and these unprecedented enforcement results reflect the commitment and teamwork of the FBI, the United States Attorneys and the United States Trustees program. Together with our partners at the Postal Inspection Service, IRS, Criminal Investigation, the Offices of the Inspectors General for the Department of Housing and Urban Development, and the Social Security Administration, and the United States Secret Service.

We are calling this large interagency effort Operation Truth or Consequences, because that's the essence of what's at stake when the bankruptcy process is abused. Tell the truth, or face the consequences.

This enforcement effort is important because bankruptcy fraud hits at the heart of what the bankruptcy system was created for: to give honest people a fresh start. But criminals take advantage of the system by either defrauding the very debtors the system was designed to help, or by defrauding creditors by using the law to discharge debts they should not otherwise be able to discharge. In the end, we all wind up paying for fraud in the form of higher interest rates and fees from companies that offer credit and loans.

In addition, the bankruptcy filing is often the last step in a series of crimes that may include health care fraud, bank fraud, mail fraud, money laundering, government program fraud, embezzlement, mortgage fraud and perjury. That's why this enforcement effort required the hard work of all our interagency law enforcement partners. And that's why it's so important that we focus on catching those who abuse the system.

Bankruptcy fraud can be the mere tip of the criminal iceberg. Many of the cases included in Operation Truth or Consequences illustrate this link between bankruptcy fraud and other white collar crimes. Let me just give you a few examples of such cases.

In the Northern District of Illinois, two cases have been charged in which bankruptcy lawyers engaged in schemes promising to save the homes of victims facing foreclosure. In fact, in at least one case, the defendant simply stole the homeowner's equity before the homes were lost to foreclosure.

In the Southern District of California, an attorney who filed bankruptcy concealed a chateau in France and other property worth $1.5 million. And in a case in the District of Delaware, two sisters collected their deceased mother's Social Security and veterans' benefits, filed bankruptcy, and then failed to disclose the bank account where they had deposited the funds.

These crimes are shameful as well as illegal. Prosecution of these individuals sends a message to anyone who may consider breaking these laws. Our enforcement tools are powerful, and we do not hesitate to use them.

We are also proud to announce today a new bankruptcy fraud Internet hotline that will make it easier for the public to reporting bankruptcy crimes. Tips from the public are often an important source of information to help us identify bankruptcy fraud. And this hotline will provide the Department with a more efficient method for the public to work with us. Cliff White will tell you more about the opening of the hotline.

Today's announcements are the latest in a strong Administration record of commitment to criminal enforcement of the bankruptcy laws, including the 2003 establishment of a specialized criminal enforcement unit in the United States Trustee program. In the last year alone, this unit trained approximately 1,500 law enforcement officers, federal prosecutors, United States Trustee personnel and others in detecting, investigating and prosecuting bankruptcy crimes.

In addition, United States Attorneys now chair approximately 50 bankruptcy fraud working groups that include representatives from each of these law enforcement partners. Together, they are committed to a nationwide effort to identify, investigate and prosecute those who willfully misuse and undermine the integrity of the bankruptcy system.

So, to those who think they can get away with bankruptcy fraud, the message from the Justice Department and our law enforcement partners is clear: You won't. Today we are packaging together these cases in order to emphasize the fact that so much enforcement work is happening and that this is something that we are committed to stopping.

Those who commit this fraud, you will be identified, you will be investigated, you will be prosecuted, you will be brought to justice. We have stepped up audit efforts now underway in order to detect even more criminal conduct.

The key is we have to strive for integrity in this system. We have to have an honest reporting of debts. We have to have people serving those who are trying to get a fresh start acting honestly. Our bankruptcy system must operate with integrity.

I'd like now to recognize Chip Burrus from the FBI, our Assistant Director for Criminal Investigations, to say a few words. Chip?

MR. BURRUS: Thank you, Paul. A fresh start. That's what the bankruptcy system is designed to offer an individual or a company. Our bankruptcy system rests on good faith. It depends on the integrity of the debtor and the idea that there exists a reasonable notion that loaned money should be repaid. The abuse of this system by an individual debtor or a professional within the system undermines not only the rehabilitation aspect of the bankruptcy system, but the integrity of the system as a whole.

Monies defrauded from bankruptcy never reach the pockets of deserving creditors or investors. As these frauds occur, these creditors and investors lose faith that their interests will be protected. This can have a ripple effect in the economy as the costs are relayed to consumers like you and me through increased interest rates, reduction in services, and additional administrative fees.

The FBI is working hard to combat bankruptcy fraud problem with our partners at the United States Attorney's Office and with the United States Trustees Office to restore confidence in the system.

In the case of bankruptcy fraud, the FBI has primary investigative jurisdiction, and continues to work closely with the United States Trustees Office on these matters. Bankruptcy fraud is a violation that can further other criminal activity such as mortgage fraud, identity theft and bank fraud. Since August 1st, the FBI has charged 48 subjects through information, indictment or criminal complaint. As of today, 11 of those have been arrested.

The FBI's strategy for reducing the number of fraudulent filings concentrates on three areas. First, the targeting of individuals and businesses who conceal assets. Second, the targeting of serial filers who make fraudulent, multiple interstate bankruptcy filings, and third, bankruptcy fraud where it's associated with another criminal enterprise.

The FBI, in collaboration with our law enforcement partners, including the Postal Inspection Service, the United States Secret Service, the IRS, the Housing and Urban Development Office of Inspector General and the Social Security Administration Inspector General, will continue to aggressively pursue those individuals who attempt to use our nation's bankruptcy system as their own personal piggy bank and to further their criminal intents.

I'd like to turn it over to the United States Trustees office for a few remarks.

MR. WHITE: Thank you, Chip. The U.S. Trustee program is the component of the Department of Justice whose mission is to protect the integrity of the bankruptcy system. And central to that mission is the enforcement of the civil and criminal bankruptcy laws.

Bankruptcy fraud must not be tolerated if our bankruptcy system is to serve its purpose of helping the honest debtor in need of financial relief. Operation Truth or Consequences highlights the commitment of the Department of Justice and our law enforcement partners to vigorously investigate and prosecute bankruptcy fraud wherever it occurs.

We're pleased to announce the launch of a new bankruptcy fraud Internet hotline to augment our criminal enforcement efforts. This hotline provides a more central mechanism for the public to report instances of bankruptcy fraud and abuse. We believe it will be helpful in our efforts to police the integrity of the system.

The graphic here on my left on the stage depicts a new notice that appears on the U.S. Trustee program's Internet home page. By clicking on the box, an individual is directed to a page on the website that details the type of information that is important for us to know and provides an e-mail link to submit information related to a suspected bankruptcy fraud.

All tips received via the hotline will be reviewed by U.S. Trustee program staff. Enforcement actions will be taken as appropriate, including referrals to the FBI or United States Attorney's offices.

I want to thank the United States Attorneys from the many districts represented in Operation Truth or Consequences, as well as our law enforcement partners for their support and assistance in ensuring the integrity of the bankruptcy system.

And now let me turn the podium back to the Deputy Attorney General.

DEPUTY ATTORNEY GENERAL McNULTY: Thanks, Cliff. And again, I want to emphasize that we are getting the word out on this, because we do want to achieve deterrence, and we that this is the kind of crime where deterrence can be achieved because of the recognition that there is a trail that will be discovered and can be investigated. So hopefully, we are going to see a decline in this area as an increase of law enforcement efforts are made.

I'm happy to answer any questions you might have.

QUESTION: I have one question on this, which is a big battle on Capitol Hill preceded passage of the bankruptcy law last year, and a lot of critics were concerned about its potential impact on honest debtors.

How many of these cases that you cite stem from the new provisions of the new law as opposed to fraud statutes that were already on the books prior to last year?

DEPUTY ATTORNEY GENERAL McNULTY: The vast majority of these cases relate to fraud statutes that already were on the books and were not created, a new criminal authority was not created in that legislation.

The legislation did a lot to change the civil system. The legislation, however, did a lot to push the priority of this enforcement or criminal side by, for example, requiring every U.S. Attorney's office to designate a coordinator for bankruptcy fraud investigations and prosecutions, which has raised the profile of this crime in U.S. Attorneys' offices.

So this fundamental criminal conduct was already proscribed prior to the passage of that legislation.

Do you want to add anything more to that?

MR. WHITE: No. That's fine.


QUESTION: Can you provide us with an update on the Mark Foley investigation and also comment on the searches that were conducted against Congressman Weldon's daughter's house and relation to a Russian energy company down in Jacksonville, Florida in what is believed to be an influence peddling case?

DEPUTY ATTORNEY GENERAL McNULTY: I know this will come as a surprise, but I have no comment on either case.

QUESTION: Can you comment on the timing? Congressman Weldon called these searches three weeks before election time suspicious. And he's involved in a very close race in Pennsylvania. And when the FBI shows up at his daughter's house, that could seem as trying to influence an election at this point. Please comment at some angle on this.

DEPUTY ATTORNEY GENERAL McNULTY: I have heard those concerns expressed, but I don't have any comment about them. We are doing the job that we're required to do.

QUESTION: This week the Attorney General announced a new initiative to study and try to combat the spike in violent crime in some of the nation's cities. He announced it without being skewered. And I'm curious, who's going to be doing this survey? Because it seems -- the announcement almost seemed rushed out. He didn't know which cities it was going to be in and he didn't say who was going to be conducting the survey to figure out which cities need to be studied the most. Can you answer -- I mean, is it BJS or is it professionals who will be doing the survey?

DEPUTY ATTORNEY GENERAL McNULTY: Well, it's going to be a number of components at the Department of Justice involved in the process. It wasn't rushed out, but it is something that is moving along rapidly in the sense that we have the release of new information that just came out in September.

And that information, specifically the Uniform Crime Reports information, revealed that there is some increase in violent crime in certain cities that's more significant or extensive than it is in other places.

So the 2005 reported crime -- on violent crime -- shows a 1.3 percent increase in the rate of violent crime, which, while being the second lowest violent crime rate since 1977, is still an increase over last year. And so that was an area of focus to determine what might be happening there.

But then as you dig deeper into the numbers, you see that some cities actually had slight reductions. Others had increases. And the -- so that occurred in September.

We had the IACP, the International Association of Chiefs of Police, meeting this week, and we thought it was a good opportunity to inform them as to what was going on.

In addition to that, we have the experiences of law enforcement concerning 2006 being expressed around the country in different ways. And so we know that there are some concerns about what's going on right now that aren't seen in data released on an annual basis that we have to wait for now for next year for 2006 numbers.

So, in order to address that sense of concern about what's happening and to let the law enforcement community know what we are trying to do, we wanted to take advantage of the opportunity that they were gathered, at least the police chiefs were gathered, in Boston. We also touched base with other law enforcement organizations as well.

We're looking at the data and selecting cities that will be reflective both geographically and statistically of the developments that we're noticing. So we'd want to see places that have increases in homicide and robbery and see that in different regions of the country where we can find it in different regions, so look for representative samples.

We are in the process of finalizing that list of cities. The Attorney General has directed me to oversee this project, and so we'll select those cities here or finalize the selection soon. We will look to have a blend of expertise in the Department involved.

You've mentioned Bureau of Justice Statistics, and we definitely want to include the statistics and analytical expertise of the Office of Justice programs. We also want to include policy types and enforcement types, prosecutors and others from within the Department, and we'll be reaching out to the law enforcement community in these cities and get their thoughts on what's going on.

And hopefully, by the end of the year, we'll be in a position to take that information, have a much better sense of what's happening right now and what are some of the trends that are affecting what's going on right now, and be in a much stronger position to look at the initiatives we have and the resources we have and how to address violent crime better.

QUESTION: So if you have to have the answers back by the end of the year, you must be planning on sending people out pretty soon.


QUESTION: How soon --

DEPUTY ATTORNEY GENERAL McNULTY: Well, we don't have a specific date right now as far as have to go on a certain time. But we will look at schedules, and depending upon our final list of the locations, what kind of efficiencies that we can find to get that done. But I expect that the process will run from the end of this month through the end of December, maybe middle of December by the time we get it all done.

QUESTION: So you'll have this group of experts representing the various disciplines and abilities and talents from the Department. Will that one group go to each city?

DEPUTY ATTORNEY GENERAL McNULTY: Probably not. What we'll have to do is divide that up and try to train them together and give them a template to work with so that the information they're gathering can be brought together usefully, but it would be very difficult perhaps to have the same individuals do everything.

We'll try to stretch those involved as much as possible and see how much we can do. But I do think that we'll probably have to have a division of labor. I may want to check in on a few myself, because there are some communities that I know personally and I'm interested in knowing what's going on there, but we'll see how that goes.

QUESTION: So you plan on visiting some of these cities that have shown a spike as well as some that have shown a decrease as well as some that are maintaining the current level?

DEPUTY ATTORNEY GENERAL McNULTY: We'll have a variety, but we have to keep it limited to get the job done and to come away with a good understanding. Now this isn't scientifically perfect, but it will be I think a very strong effort to try to get a good feel as to what's happening.

And we'll look for the kind of mix you suggest, where we can get some of the cities that have perhaps not experienced the same rise, so that we might be well informed as to what they are doing there that might be contributing to a lack of growth in the violent crime. But our principal focus is on the places that have experienced the increase to find out what's going on there.

QUESTION: I know you can't talk about specific investigations, and particularly sensitive political investigations. You've made that clear. But can you give any kind of public assurance that the Justice Department is completely playing it straight and that if the -- and if there's a decision made to close an investigation which has been public exposed, that at least you can announce that so that honest people who may have been caught up in an investigation aren't left kind of hanging and twisting?

DEPUTY ATTORNEY GENERAL McNULTY: Well, I can certainly assure you that the Department of Justice is doing everything it can to conduct all of its investigations in a way which is -- adheres strictly to the rule of law, and to do them in the ways that are as efficient as possible and yet faithful to our responsibilities.

I know that sometimes investigations can take a long time, and those who are being investigated wish that we would have an announcement that we've come to a completion or whatever. And that's certainly understandable. And sometimes that's possible when the case does not involve in a charge being brought.

Other times, it takes a considerable amount of time to get to a point where it's safe to make that conclusion. And so it really is driven on a case-by-case basis.

But as a general principle, I think that's a very reasonable concern to say if something has run its course and is over that we would be able to say that. And in some instances, we have, and I see us continuing to do that when it's appropriate.

QUESTION: As sort of a follow-up, obviously the critics of the investigations are people who are being investigated or alleging that there's some kind of political motive here.

Aside from saying that there's no political motive, we're doing our job, do you have any thoughts on why all these things seem to be bubbling up now? Is this just where the investigation now has taken its course and it has reached that place where it's being exposed? Or is there any other reason why all these things might be coming up a month before an election?

DEPUTY ATTORNEY GENERAL McNULTY: I think I'm going to refrain from answering the question about speculating as to why things appear to be in the news now more than other times.

What I can say with great confidence is that the men and women in the Department of Justice and all of its investigative agencies do not take political considerations into play when it comes to discharging their duty. And that's the way we run this Department and the way we always will run the Department. But beyond that, I'm not going to talk about the timing of anything happening.

MR. ROEHRKASSE: We'll take one more question.

QUESTION: I'm sorry if I didn't phrase this very gracefully. I wasn't asking you to speculate as much as just in your capacity as somebody who knows the law, why all of these things would be coming -- I mean, have they reached a certain point in the investigation where this would be a natural exposure, or?

DEPUTY ATTORNEY GENERAL McNULTY: I think you stated it real well the first time, and I kind of got it. And now that I've been given a second chance, I still don't want to take an opportunity to answer that. So, I'm sorry, I'm going to decline doing that.

Thanks very much.