Sequestration May Lead to Increase in Financial Fraud and Other Crimes, Preet Bharara Warns

The U.S. Attorney for the Southern District of New York, Preet Bharara, knows about prosecuting financial fraud, and other federal crimes. So, when he warns that sequestration is severely harming the ability of his office to meet its mission, we all should pay attention.

Speaking before the New York County Lawyers' Association's Task Force on Judicial Budget Cuts, Bharara explained that his office:

• has 210 Assistant U.S. Attorneys, almost 20 fewer than in 2011;
• is operating with a 13 percent vacancy rate for Assistant U.S. Attorneys and a 26 percent vacancy rate for staff, the highest rate for staff among all the U.S. Attorneys’ offices in the country;
• is operating with a $5.7 million reduction in its budget for fiscal year 2013 as a result of sequestration, a 10.9 percent reduction from 2012; and
• expects another $776,000 cut in its budget for 2014, resulting in a total two year reduction of 12.4 percent.

Bharara added that his office “cannot hire any new employees at all, AUSAs or staff, not even to replace departing employees.”

He warned that “the impact of a prolonged hiring freeze and continuing budget cuts could ultimately work irrevocable harm to the fundamental mission of my office—which is to keep our homeland secure, our streets safe, our markets fair, and our government honest.”

Ironically, the budget cuts facing Bharara’s office – and other U.S. Attorney’s offices across the country – actually cost the government money.  As Bharara observed:

The irony of the situation is that the evidence overwhelmingly shows that every dollar spent on my office would actually generate more money than it would cost. A lot more. Just as an example, last month we entered into a plea agreement with a hedge fund, SAC Capital, that, once the plea is accepted, will lead to a $1.2 billion payment.

That amount—from one case alone—is 24 times our office’s annual budget of about $50 million. And if you look at the total financial penalty of $1.8 billion, including the $616 million penalty to the SEC, that amount would just about cover the entire annual budget for every U.S. Attorneys’ office around the country combined.

One can hope that Congress will come to its senses. Otherwise, federal prosecutors including Bharara may have to make difficult choices to stretch their resources. That could include settling civil cases on the cheap because going to trial would be too resource intensive, or pleading out criminal cases on the cheap for the same reason. It could mean putting public corruption investigations on hold and easing up on investigations into financial frauds.

That benefits nobody. Except the criminals who commit financial frauds and other crimes.

Contact the author at smeyerow@optonline.net. 

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