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Virginia prosecutor wants in on big fraud cases
Fri, May 21 2010

By Jeremy Pelofsky

WASHINGTON (Reuters) - A top U.S. prosecutor in Virginia said on Friday he
planned to investigate major financial fraud cases, using securities filings
made in the state and challenging New York where most of those cases are
handled.

The U.S. attorney for the Eastern District of Virginia, Neil MacBride,
announced a new task force to target national fraud cases in the wake of the
2008 financial meltdown, teaming up with the FBI, Securities and Exchange
Commission and other regulators.

He said that public companies must file with the SEC which houses its
databases in Virginia and that the Federal Reserve Bank of Richmond also
handles scores of wire transfers, both of which would give him the
jurisdiction to pursue the fraud cases.

"The Eastern District of Virginia has the legal authority to bring cases
here with national significance, regardless of where the fraud occurs,"
MacBride said. "Every publicly traded company must file financial statements
with the SEC's EDGAR filing system, which is located in this district."

The Obama administration has vowed to crack down on fraud in the wake of the
housing collapse which touched off a global economic slide. But the SEC and
Justice Department have been criticized by some in Congress for failing to
bring many significant cases so far.

"One thing I have noticed that's been missing is show trials," Republican
Sen. John Cornyn said last month. "We simply haven't had the people who were
guilty of criminal conduct brought to justice and tried in public and
punished for committing crimes that the American people are paying for."

Prosecutors have brought several smaller cases including mortgage schemes
that defrauded homebuyers. However, they lost a major case involving two
former Bear Stearns hedge fund managers accused of fraud during the early
days of the financial crisis.

In what was viewed as a blow to the administration's efforts to crack down
on alleged misconduct during the crisis, a New York jury acquitted the two
men on all charges of conspiracy, securities fraud and wire fraud.

RIVALRY

In the past, most major financial fraud cases have been brought by federal
prosecutors in New York, where a broad criminal investigation already has
been launched into whether six major Wall Street banks misled investors in
transactions as part of the subprime mortgage meltdown.

One private practice attorney noted that there has been a rivalry between
New York and Virginia prosecutors, particularly over who would handle big
terrorism cases. The Virginia office handled the case against Zacarias
Moussaoui who was convicted of conspiracy charges related to the September
11, 2001, attacks.

"They see themselves just as good as and just as capable as handling the
largest and most significant cases as the Southern District of New York,"
said Steve Nickelsburg, a partner at the Clifford Chance law firm.

He said that MacBride likely already had some cases in his sights but could
face challenges to Virginia's jurisdiction in some instances. Further,
Nickelsburg said that financial fraud would be a focus for the coming years.

However, one law professor questioned MacBride's move, suggesting that
senior Justice Department officials should intervene because prosecutors
will be in a race to the courthouse fighting over prominent cases.

"My reaction is that really the Department of Justice should get involved
here," said Marcel Kahan, a law professor at New York University. "They
can't just let any U.S. attorney run loose and think 'from now on I'm going
to prosecute all of these cases.'"

(Additional reporting by Rachelle Younglai, editing by Matthew Lewis)
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Eric D. Schwerin
Rosemont Seneca Partners
(202) 333-1880
eschwerin@rosemontseneca.co