FBI Cuts White-Collar Crime Force as Terror Takes Priority

Staff Reporter

The shift of federal resources to fight terrorism has been taking personnel away from local investigations of white-collar crime and is quietly being felt on several law enforcement fronts.

While the net effect on current or potential investigations is hard to measure, and cutbacks involve more than terrorism-related factors, concern is being raised about the loss of FBI investigators who normally would be engaged in L.A.-based white-collar cases.

"The first several months after Sept. 11, there was clearly a significant drop in activity," said James Asperger, partner and co-chairman of the white-collar defense group at O'Melveny & Myers LLP and former chief of the major frauds section of the U.S. Attorney's office in L.A. "Resources were devoted to anti-terrorism. A number of cases were not very active, and the number of pending cases was smaller."

Randall Lee, director of the Securities and Exchange Commission's Regional Pacific Office, said the recently announced reduction of FBI's white- collar crime resources would make it more difficult for the commission to coordinate its investigations with other agencies.

The SEC, which can only pursue cases in civil court, relies on the FBI and U.S. Attorney's office to investigate and prosecute criminal matters. Lee estimated that half of the SEC's cases in 2001 contained criminal charges or investigations, twice the level of the year before.

The changes also are expected to be felt at the U.S. Attorney's office, which may be forced to borrow resources from other investigative agencies, such as the Internal Revenue Service and the U.S. Postal Service, according to Debra Yang, the new U.S. Attorney for the Central District of California.

"It will be interesting," Yang said. "With a number of (FBI) resources going back to D.C., you'll see a decline in prosecutions. These are the same people who would be walking in our doors."

Yang's office covers 15.5 million people in seven counties, the most of any office in the country, and it is already feeling the strain.

Gary Tang, spokesman for IRS criminal investigations in the Los Angeles field office, said the L.A. division of the IRS had hired 30 agents in the past year. But new agents need several years of training before they can handle the more complex white-collar cases that come from the U.S. Attorney's office.

The FBI realignment, announced by FBI Director Robert Mueller on May 29, means that a handful of the 185 agents assigned to white-collar crime in L.A. could be reassigned, according to Ronald Iden, assistant director in charge of the FBI's L.A. division.

The moves follow an earlier shift from white-collar investigations following the Sept. 11 attacks. Iden said he expects those reassignments to continue during the next six months.

Despite the ongoing shifts, which he said would involve fewer than five agents, Iden insisted the long-term effect, if any, should be minimal.

"Long-term there will not be a seriously negative impact on the quality or quantity of the white-collar work we're doing," Iden said. "Short-term, there has been. We have had to reassign white-collar agents to work terrorism matters. That short-term is past, present and perhaps six months into the future."

Iden said during that period the FBI would limit its white-collar work to "highest-priority cases."

"There will be some cases that won't be indicted as quickly as they might have been, but they will be charged and investigated," he said.

That may prove to be a problem in a district that was staffed with the largest contingent of white-collar agents of any FBI office in the country. That staffing was in response to an increase in white-collar criminal activity, especially in securities and health care fraud, said Rick Wade, a former assistant special agent in charge of white-collar crime at the FBI's L.A. division, in an interview in October. Wade retired May 17.

The shift of L.A. resources away from white-collar investigations pales when compared to the 400 agents including an undetermined number here who will be transferred from drug investigations.

Still, in a post-Enron era, and in a city known for fraud cases, any shortfall in criminal investigations could be detrimental.

"You have a time when corporate cases are making headlines across the country and the SEC's demands are enormous to investigate these cases," said Vincent Marella, a partner at white-collar defense firm Bird Marella Boxer & Wolpert PC in Century City.

Marella, a prosecutor in the U.S. Attorney's office in the 1970s, said, "One has to wonder, if and when criminal referrals are made in some of these cases, who will work the criminal side? Usually the FBI is front and center on those SEC cases."

Shifting other resources

The various shortfalls are not being blamed entirely on terrorism.

The major frauds section of the U.S. Attorney's office, which prosecutes white-collar crimes against private individuals and institutions, currently has 27 prosecutors, down from 34 in 1993.

Thom Mrozek, spokesman for the U.S. Attorney's office in L.A., attributed the declining numbers to a shift of resources to Orange County over the past three or four years, and not an actual decline in total prosecutors.

But Asperger said the U.S. Attorney's office has always had high attrition, which affects how many agents are regularly working cases.

"The question is whether there's sufficient resources devoted to federal white-collar prosecutions in the Central District of California," he said. "The key challenge for the new U.S. Attorney is focusing on priorities and taking over an important leadership role in a challenging time."

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