The government may have a very difficult time pinning fraud raps on financial institutions over their packaging and sales of subprime mortgage-backed securities, according to the former deputy director of the Securities and Exchange Commission’s enforcement division.

Peter Bresnan, who won his greatest fame as lead attorney in the SEC’s case against WorldCom, is now in private practice representing companies under government investigation — including some financial institutions — and he admitted that there is a bias to his views.

However, he told CFO.com that while at the SEC he helped form and guide the subprime working group, and “recognized then that subprime cases were extremely complex and posed several unique obstacles for the government.”

That such cases will be brought appears inevitable. The SEC currently has about 50 open investigations into possible fraud, according to Andrew Calamari, the commission’s New York-based associate regional director and co-head of enforcement. “I can say with confidence that some charges will be filed,” he said during a panel discussion held on Friday by the Directors Roundtable, a civic group that organizes programming for corporate directors. “And hopefully you’ll be seeing something soon.”

It’s obviously appropriate for the government to be looking into this, allowed Bresnan, who moderated the panel. But, he said, “We’re used to finding villains in financial scandals. With WorldCom and Enron, it was easy to find them. In this situation I think the search for villains could be much more difficult.”

One problem is deciding who is more villainous than whom. Everybody failed to see the risks and the coming crisis, noted Bresnan, a partner with Simpson Thatcher & Bartlett LLP. Democratic presidential nominee Barack Obama blames the Bush Administration; Republican nominee John McCain blames Christopher Cox; Alan Greenspan now is blaming himself. Other fingers point at the credit-rating agencies. And to some, even the people who took out mortgages they couldn’t afford are not beyond culpability.

“Are all the people who offered the mortgages to blame?” Bresnan mused. “Is everybody who securitized the mortgages to blame? How about the insurers who insured these products?” The fact is, he said, that everyone got the valuations wrong — including Warren Buffett.

If everyone is to blame, it raises a fundamental fairness issue that the government will have to face if it tries to put some people in jail while bailing out others, according to Bresnan.

Calamari, though, said the SEC is not interested in second-guessing valuations. It’s going to base cases on more concrete facts — for instance, whether financial-firm employees had information on default-rate trends that would require additional reserves to be allocated, but chose not to allocate the reserves so the firm’s quarterly results would be healthier; or whether brokers sold auction-rate securities without disclosing that they were backed by subprime instruments.

Another problem, Bresnan said, involves the complexity of the cases. “How would you even go about explaining the concept of a CDO Squared to a jury?” he asked. “The government won’t want to do that. They’ll try to boil them down and make them about lying, cheating, and stealing. But were the losses caused by fraud, or by changing market conditions, bad risk assessment, and negligence?”

William Johnson of the U.S. Attorney’s Office, who prosecuted WorldCom boss Bernie Ebbers, said criminal cases will be judged individually on merit. “There will be no predetermined notions of any particular type of activity being the cause of a crime,” he said, but pointedly added that lying about a company’s true financial condition is a crime.

In any event, the true cause of the subprime losses may be very hard to ascertain, according to panelist Ellen Zimiles, a former federal attorney and Big Four accounting firm principal who now is CEO of a forensic investigation firm, Daylight Forensic & Advisory. Investigators always need people inside the organization to guide them to the correct information, she said, but in this case, because of all the layoffs and other changes at financial firms, identifying such people will be a challenge. Many of those who can be identified are so afraid of what might happen to them that they may be of little help.

Zimiles said that it ultimately may not be clear whether fraud was committed in the valuation of subprime securities, or the firms simply did not have in place internal controls up to the task of spotting insufficient valuation methods for complex securitizations as they were being created in 2006 and 2007. “What we know now is not what we knew then,” she said. “The control function in many of these organizations did not have the expertise to look at this properly. At the end of the day, it’s not going to be so clear what happened.”

Meanwhile, another interesting aspect of subprime-related cases will be deciding what remedies are appropriate for those deemed to have committed violations, according to Bresnan.

He questioned whether it would make any sense to assess a financial penalty against a firm that already lost billions of dollars trading subprime securities. “What kind of fraud is it where the person committing the fraud is losing billions of dollars? What were they doing, defrauding themselves?”

Bresnan noted that the government came up with a novel solution in cases brought over the sale of ARS, requiring financial firms to buy back the illiquid investments — more than $50 billion worth so far. But he said it would be simply impossible to do the same with subprime mortgage-backed securities, because of the much larger volume.

Besides, he noted, the government’s response has been to say, “We’ll buy them back ourselves.”

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