On May 20, 2009, President Obama signed into law the Fraud Enforcement and Recovery Act of 2009 (“FERA”), Public Law 111–21. FERA provides the federal government with tools to investigate and prosecute mortgage, corporate, and other financial frauds. Its objective is to increase enforcement oversight over the types of financial frauds that contributed to the current subprime and economic crisis, and to recover taxpayers’ money lost to these frauds.
Section 5 of FERA establishes the Financial Crisis Inquiry Commission (“FCIC”) with broad powers to investigate both the domestic and the global causes of the current economic crisis in the United States. The FCIC’s 10 members are chosen by leaders of the major political parties, private citizens with experience in banking, regulation of markets, taxation, finance, economics, consumer protection, and housing. The FCIC will serve two main functions: to examine the causes of the current financial and economic crisis in the United States; and to determine the causes of the collapse of each major financial institution that failed.
Modeled after the 1930s Pecora Commission (named for its committee counsel, Ferdinand Pecora, a former assistant district attorney from New York) which the Senate Banking and Currency Committee formed to investigate the market crash of 1929, the FCIC will hold hearings and have subpoena power. The FCIC has until December 15, 2010 to submit its report of findings and conclusions regarding the causes of the current financial and economic crisis.
Members of the FCIC include former California treasurer, Phil Angelides who will be chairman, and Bill Thomas, former California Republican congressman who led the powerful Ways and Means Committee will be vice-chairman. Other members include Bob Graham, former Democratic senator from Florida, and Brooksley Born, former chairman of the Commodities Futures Trading Commission, John W. Thompson, board chairman of security software Symantec Corp., Heather Murren, a retired Merrill Lynch director and Byron Georgiou, a Las Vegas attorney are the names suggested by Democrats, Douglas Holtz-Eakin of DHE Consulting, Peter Wallison of the American Enterprise Institute and Keith Hennessey, an economic adviser to former President George W. Bush are appointed by the Republicans.
Interestingly, the NY Times reports that President Obama issued a signing statement limiting the administration’s duty to comply with requests by the FCIC stating:
Section 5(d) of the Act requires every department, agency, bureau, board, commission, office, independent establishment, or instrumentality of the United States to furnish to the Financial Crisis Inquiry Commission, a legislative entity, any information related to any Commission inquiry. As my administration communicated to the Congress during the legislative process, the executive branch will construe this subsection of the bill not to abrogate any constitutional privilege.
The Pecora Commission led to significant reforms including the Securities Act of 1933, the Glass-Steagall Act of 1933, and the Securities Exchange Act of 1934. Whether the FCIC will be able to match the reforms of the Pecora Commission remains to be seen.