Investigators are hunting through the remains of the stock-market collapse and housing bust of 2008 for fresh signs of white-collar crime, targeting many of the same types of misdeeds that precipitated past market downturns.
U.S. Attorney Benton Campbell of the Eastern District of New York said that companies and their products may have grown increasingly complex, but crimes following every market collapse are always very simple: "the classic lying, cheating, stealing type things."
"The more things change, the more they stay the same," he said in an interview.
On Monday, federal prosecutors in Manhattan and New York's attorney general said they would jointly probe an obscure and unregulated corner of markets that is closely linked to the massive losses and collapse of confidence dragging down investment banks and other financial institutions. They are focused on whether there was any manipulation that occurred in the multitrillion-dollar trade of credit default swaps, contracts that offer insurance for lenders worried about a borrower's ability to repay loans.
In Washington, 28 House Republicans led by Minority Leader John Boehner asked Attorney General Michael Mukasey to review the activities of Fannie Mae and Freddie Mac as part of its investigation of possible fraud in the markets for home loans and mortgage-backed securities.
The FBI is investigating two dozen large financial firms on a wide range of charges. Those reportedly on the agency's list include Fannie and Freddie, insurer American International Group Inc. and failed investment bank Lehman Brothers Holdings Inc.
In April, FBI director Robert Mueller diverted people from other assignments, committing 204 FBI agents to financial fraud investigations. On Monday, the bureau said 177 agents were handling mortgage fraud and other financial investigations. The bureau had no immediate response to questions about why fewer agents are now on the cases.
Despite the resources being deployed, it isn't always easy to land a conviction in a complicated white-collar case.
Charles A. Ross, a white-collar criminal defense lawyer, noted that nearly 200 companies were once under investigation in a stock-option backdating scandal a few years ago but very few charges resulted. In addition, 15 Wall Street Stock Exchange floor traders were charged on securities-fraud counts but the highly technical case completely collapsed.
And just last week, the government put three former executives of accounting giant KPMG on trial in a sprawling tax-fraud case after the original prosecution fell apart. Prosecutors are casting it as a simple case about lies, while defense lawyers are putting the focus on a tax code so complicated that it is spelled out in small print in six thick books that nobody fully understands.
In the latest investigations, experts say authorities will likely check to see if the suspects were saying one thing to each other privately and something else entirely to the public and the Securities and Exchange Commission.
"If I had to guess the kind of violation, it would be a disclosure violation," said Bruce Baird, who served nine years as a federal prosecutor. "Typical securities violations, a public company not disclosing it knew how bad a shape the company was in or how much the value of assets had been reduced."
Whoever ends up getting charged will be part of a long line of Wall Street figures who prosecutors sought to make examples of following market collapses.
In the 1980s it was Ivan Boesky and Michael Milken. After the dot-com bust, it was bankers who were touting vastly overvalued tech stocks. Accounting and stock scandals this decade brought down executives such as Martha Stewart, Bernard Ebbers and Jeffrey Skilling.
It is far too early to tell who might come to symbolize the meltdown of 2008, although there has been no shortage of ire directed at executives of AIG over lavish corporate retreats, along with former Lehman CEO Richard Fuld, whose company is under investigation by prosecutors in three locations.
The first Wall Street figures to be charged in the subprime mortgage fallout worked as hedge fund managers for Bear Stearns. They were arrested in June on charges accusing them of misleading investors about the subprime-mortgage crisis.
The Brooklyn federal case accused one of the men of pulling $2 million of his own money from the fund even as he was advising investors to maintain their investments. As the fund managers urged investors to put up more money, prosecutors said, internal communications revealed an outlook that was quite gloomy, with one of the bankers describing the subprime-mortgage market as "toast."
The hedge fund managers are awaiting trial; their lawyers say they are being made scapegoats for larger issues with the economy.
Anthony Barkow, a former federal prosecutor in Manhattan who now heads a think-tank at New York University, said white-collar investigators at every level of government will be busy now.
"There's an outcry for action," he said. "Indicting somebody tomorrow for one of these meltdowns is not going to fix the economy, but it could create a deterrent effect in the future."
New York Attorney General Andrew Cuomo has already initiated a wide-ranging probe of the mortgage industry, including loan originators and big banks. He also is investigating short-selling, a trading technique that has been criticized for being used by some traders illegally to manipulate markets.
Ross said some of his colleagues are predicting a bull market for his profession.
But while he believes that prosecutions related to the mortgage collapse will materialize, he said it would not be wise for prosecutors to overreact to wild swings in the stock market.
"The likelihood there is inherent criminality in all of that is extraordinarily low," he said.
Campbell said he was prepared to enlarge his team of prosecutors looking into financial crimes including securities fraud, accounting practices compliance and insider trading, but realized it was necessary to separate financial pain caused by market forces from criminal misconduct.
"Our job is to find the fraud," he said.