As the Justice Department has stepped up its pursuit of financial institutions, there has been a surge of civil fraud lawsuits brought by the government under FIRREA — the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 — a law that allows the government to sue for civil penalties for fraudulent conduct affecting federally insured financial institutions. FIRREA has been used as the basis for investigations and fraud lawsuits against banks and mortgage lenders in a variety of contexts, including the rating and sale of residential mortgage backed securities (RMBS), government loan originations, conventional loan sales to Fannie Mae and Freddie Mac, and the supervision of payment processors. Using FIRREA, the government has obtained sizable settlements, prevailed in several recent court challenges to the government’s expansive use of FIRREA, and most recently obtained a jury verdict in the first FIRREA case against a significant financial institution to go to trial. Its statute of limitations reaches back ten years, and thus exposes to scrutiny actions the Justice Department perceives as contributing to the 2007 financial crisis.
Not surprisingly, in light of this surge of FIRREA enforcement, more and more financial institutions are finding themselves on the receiving end of FIRREA subpoenas, both from the Justice Department in Washington, D.C., and from U.S. Attorney’s offices around the nation. While FIRREA subpoenas are no longer a rarity, court challenges to FIRREA subpoenas — like challenges to most subpoenas issued by law enforcement agencies — still are. The prevailing wisdom has long been that challenging a government subpoena has no upside and poses great risk: Such challenges, the thinking goes, are rarely successful, and bringing a challenge risks incurring the wrath of the prosecutor, who may only become more aggressive, thinking the company has something to hide. What is more, when you file a court challenge to a subpoena, you immediately make public the previously confidential fact that the government is investigating you.
Originally Published in BNA's Banking report - December 3, 2013.
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