A series of recent court rulings has effectively expanded the Department of Justice’s authority to investigate and prosecute banks for claims related to the financial crisis. These rulings have broadly interpreted a little-known provision of the Financial Institutions Reform, Recovery and Enforcement Act (FIRREA) of 1989 to allow the DOJ to seek millions of dollars in penalties from federally insured financial institutions for violations of criminal fraud statutes. Under Section 951 of FIRREA, codified as 12 U.S.C. § 1833a, the DOJ need only rely on a civil burden of proof to prove criminal fraud, provided that the alleged fraud “affects” a federally insured financial institution. Although the provision was originally viewed as a measure to protect banks from fraud by third parties, three separate courts have recently construed this “affects” requirement broadly and affirmed that a bank can be both a “victim of” and a “participant in” the predicate fraud that gives rise to a FIRREA claim. As a result, FIRREA has become the DOJ’s statute of choice when proceeding against financial institutions. Given the serious consequences of a FIRREA suit, financial institutions should be aware of its unique reach and legal standards.
The DOJ’s use of FIRREA suits has been linked closely to its role on the Financial Fraud Task Force. President Obama formed the Task Force in 2009 in response to the financial crisis. The Task Force comprises more than 20 federal agencies, including the Department of Justice, the Consumer Financial Protection Bureau (CFPB), the Securities and Exchange Commission (SEC), the Internal Revenue Service, and the banking regulatory agencies and consists of several working groups, including a Consumer Protection Working Group and the Mortgage Working Group. A recent press release describes the Task Force as “the broadest coalition of law enforcement, investigatory and regulatory agencies ever assembled to combat fraud.” Although the Task Force comprises numerous federal agencies, it operates under the leadership and guidance of the Department of Justice, as Attorney General Eric Holder serves as its chair.
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