DOJ Leaders Clash on Expanding Fraud Division to Financial Crime

Senior Justice Department officials are locked in a dispute over whether to enlarge the scope of a newly established fraud division ahead of a Thursday deadline that will shape the focus of Trump-era white collar investigations.

A major sticking point is fraud division leader Colin McDonald’s push to retain financial markets and consumer fraud prosecutors on his team, despite his office’s stated mission of targeting government program schemes, said multiple people familiar with the discussions.

Criminal Division head Tysen Duva has conceded permanently transferring healthcare and procurement units from his criminal fraud section to McDonald after they were initially loaned for a 30-day interim period, added the people, who spoke anonymously to discuss internal deliberations. But Duva has advocated for returning corporate-minded market and consumer attorneys to the Criminal Division, they said.

The situation remains fluid as the sides are trying to reach a compromise before a final recommendation will be sent to the deputy attorney general by Thursday under the contours of a memo signed by acting Attorney General Todd Blanche. But McDonald, Blanche’s close ally, has a key edge in the debate as he’s been separately functioning as a de facto deputy AG since Blanche assumed the duties as DOJ’s top official last month.

McDonald, whom several individuals said has forged a bond with White House aide Stephen Miller and has the trust of Vice President JD Vance, is also contemplating a broader dismantling of the Criminal Division’s fraud section to support his initiative. Officials are discussing potentially stripping the section, which has long served as the department headquarters hub for white collar expertise, of its corporate compliance and special matters units, to support McDonald’s division, some of the people added. Those plans would go further than what was originally conceived in the reorganization memo.

As McDonald simultaneously runs the DAG’s office, he’s been relying on a newly appointed lawyer, Jonathan Hornok, to manage day-to-day operations of the fraud division, said multiple people. Hornok, who was first tapped by DC’s then-US attorney Ed Martin as criminal chief but later demoted by Martin’s successor Jeanine Pirro, has resurfaced in a key national role.

An overarching concern to former career officials at DOJ is that the outcome of fraud personnel shuffling will erode the nonpartisan reputation of an elite office by aligning it more closely with what’s become a core White House priority of combating crimes against taxpayer-funded programs in blue states like Minnesota and California.

“Why create a scenario where people can perceive that it’s designed to create opportunities to go after enemies of the administration? Whether that’s going to be how it’s used or not, why even do it?” said Steven Tyrrell, the fraud section chief from 2006 to 2009.

“My concern would be that it will not enhance and increase the amount of enforcement; it will hinder it and decrease it because you’ll have resources now committed to bureaucracy, as opposed to investigation and prosecution, and because you’ll have people who are leaving,” added Tyrrell, who is now a partner at Brown Rudnick.

DOJ spokespeople didn’t respond to a request for comment.

Mass Exodus?

Whether the restructuring causes a mass exodus due to concerns of politicization is an open question to fraud section veterans.

Many in the Criminal Division’s fraud section said they felt betrayed when DOJ backtracked on Duva’s earlier assurances that they would stay put while DOJ launched the new fraud division, but the initial weeks of their interim restructuring has lacked turbulence, multiple individuals said.

McDonald has thus far permitted his staff in their interim 30 days to proceed with their previous cases from the fraud section, without interference—including from the White House—people briefed on the matter said.

That’s included a consequential securities fraud prosecution of short seller Andrew Left that’s headed to trial next week. The markets fraud attorneys bringing that case don’t have a clear nexus to the new fraud division’s taxpayer program mission, but at least one of them is nonetheless part of the group under negotiation to stay with McDonald permanently.

The fraud division announced last week the expansion of the healthcare strike force model into three western districts, another indication that the project would be borrowing from the Criminal Division’s fraud section practices rather than attempting to reinvent them. If the strike force’s data-driven approach is followed, it could lead to prosecutions of Medicare and Medicaid fraud in red and blue states alike—including prolific histories of healthcare schemes in Trump strongholds of Texas and Florida.

While former DOJ officials said they’d like to take the administration at face value in messaging a heightened prioritization of fraud cases, they’re still leery, given Vance first announced the division by stating it would report to himself and the president. At a press conference April 7, Blanche acknowledged the White House would be referring cases to the division.

An additional wild card in the process is a separate White House task force on eliminating fraud, which has an ambiguous relationship to McDonald’s division.