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From Banking and Finance Law Daily, July 11, 2018

SEC, DOJ, CFPB, and FTC form market and consumer fraud task force

By John Filar Atwood

Federal regulators and law enforcement agencies have formed a new task force to combat corporate fraud and fraud against consumers, especially the elderly, service members, and veterans. The Task Force on Market Integrity and Consumer Fraud, created through a White House executive order, was announced by DOJ Deputy Attorney General Rod Rosenstein, SEC Chairman Jay Clayton, CFPB Acting Director Mick Mulvaney, and FTC Chairman Joseph Simons.

According to Rosenstein, the task force will focus on fraud against the government, the financial markets, and consumers; procurement and grant fraud; securities and commodities fraud; digital currency fraud; money laundering; health care fraud; tax fraud; and other financial crimes. One of the group’s first objectives will be to identify areas of vulnerability across all of the partner agencies, and to devote resources to address them.

Prosecution. Rosenstein said that the task force’s emphasis will be to deter, rather than to prosecute, fraud. Responding to questions after the announcement, DOJ Acting Associate Attorney General Jesse Panuccio indicated that this does not mean there will be a de-emphasis on prosecution, but that the agencies will work to deter fraudulent activity before it necessitates an enforcement action. The DOJ and other agencies will continue to prosecute fraud cases, he stated.

The Obama Administration formed a similar task force after the 2008 financial crisis, and Panuccio said that the new task force will build on the work done by that group. "This is an expansion of that task force’s efforts, to increase the focus on areas such as elder fraud and cyber crimes," he said. While the previous task force was a response to the financial crisis, he added, the new group represents a broader effort to combat fraud.

Piling on. Among the new task force’s objectives will be to discourage "piling on," where multiple penalties are imposed by different agencies for the same misconduct. In that regard, the task force will employ the DOJ’s recently-announced policy of encouraging cooperation internally and with other enforcement agencies when imposing penalties for the same crime. Rosenstein said the task force will coordinate with local, state, federal, and foreign authorities to achieve a joint result that does not prolong investigations and waste investigative resources.

He suggested that the task force would welcome cooperation in its investigations. For companies that choose to cooperate in investigations, voluntarily report misconduct, and remediate the harm, he said, the task force "will work together with other agencies to ensure an appropriate and just result."

Multi-agency cooperation. Each of the officials emphasized what their agencies are already doing to combat fraud, and highlighted recent enforcement actions that involved multi-agency cooperation. Rosenstein said the new task force will enable the partners to do even more to achieve effective and efficient outcomes. Using pooled resources, including subject-matter expertise, data repositories, and analysts and investigators, he said, will enable the government to stop fraud on a wider scale than any one agency acting alone.

SEC Chairman Clayton echoed these sentiments, and pointed to a 2017 shutdown of a boiler room scam targeting elderly investors and a January 2018 restraining order against a fraudulent initial coin offering (IOCs) as instances in which inter-agency cooperation was vital.

Clayton said he expects the task force to focus on cyber-enabled crime, including potentially fraudulent ICOs. He noted that the SEC has already filed multiple actions against ICOs this year and has frozen tens of millions of dollars of assets related to these offerings. The agency partnered with federal criminal authorities in these cases, he said, and looks forward to continuing a coordinated effort on cyber issues through the new task force.

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