U.S. vows to root out mortgage, corporate fraud

ASHINGTON - The U.S. Justice Department sought to assure lawmakers on Wednesday that prosecutors are rooting out mortgage and corporate fraud after Wall Street's meltdown wiped out trillions of dollars in investments and laid bare the gaps in regulation.

But some lawmakers are not impressed.

"I, like many Americans, remain frustrated that the responsible agencies have not been able to bring more high- level crooks to account," said Senator Edward Kaufman, a Delaware Democrat who called a Senate Judiciary Committee hearing to examine the issue.

"In the midst of the housing boom-and-bust cycle, did Wall Street executives and hedge fund managers commit financial fraud? If so, why haven't we seen any convictions yet?" said Kaufman, who joined the Senate earlier this year to fill the seat of now-Vice President Joseph Biden.

Assistant Attorney General Lanny Breuer told lawmakers the Justice Department is combining forces with other federal and state law enforcement agencies to prosecute "high impact" cases where mortgage fraud is most acute.

Also testifying at the hearing were Robert Khuzami, the enforcement chief of the Securities and Exchange Commission, and Kevin Perkins, assistant director of the Federal Bureau of Investigation.

All three officials said they are aggressively investigating financial fraud stemming from the U.S. mortgage crisis and housing bust to punish those responsible.

The White House in November created an administration-wide task force to investigate and prosecute financial crimes connected to the past year's crisis.

The SEC -- heavily criticized for missing Bernard Madoff's $65 billion investment scam -- is overhauling the way it handles tips and conducts investigations.

Earlier this week, the SEC charged three former executives at now-bankrupt lender new Century Financial Corp with fraud. In another high-profile case, the SEC charged Angelo Mozilo, who built the largest U.S. mortgage lender, Countrywide Financial Corp, with securities fraud and insider trading.

The SEC also accused the operators of the Reserve Primary fund with fraud for telling investors the fund was safe before it "broke the buck" at the height of the financial crisis in 2008.

But law enforcers have also experienced setbacks.

The Justice Department last month lost a pivotal case against two Bear Stearns managers whose hedge funds collapsed in the early stages of the financial crisis. A New York jury acquitted the two men on all charges of conspiracy, securities fraud and wire fraud in what was seen as a test case for prosecuting Wall Street figures for their alleged roles in the economic meltdown.

The SEC was forced to go back to the drawing board after a federal judge blasted the agency for being too lenient on Bank of America Corp over what it had not disclosed about its purchase of Merrill Lynch.

(Reporting by Rachelle Younglai; editing by Andre Grenon)