In the wake of the savings and loan crisis of the 1980s, Congress passed the Financial Institutions Reform, Recovery and Enforcement Act of 1989 (FIRREA).1 Upon its enactment, FIRREA dramatically impacted the banking industry and the functions and powers of federal banking regulators, but it was rarely used for civil fraud enforcement. Lately, however, prosecutors have added FIRREA to their arsenal by using its provisions to bring claims of financial fraud against major financial institutions and rating agencies. Taking advantage of FIRREA’s lengthy statute of limitations, arguably low burden of proof2, and the ability to issue administrative subpoenas to conduct a civil investigation in advance of filing a civil complaint, the government’s actions appear to promise a host of suits targeting many financial institutions.
FIRREA’s re-emergence is due in part to two critical facets of the law. First, since the typical statute of limitations for anti-fraud suits is five years, many causes of action tied to the peak of the financial crisis in 2007 and 2008 have expired. FIRREA, however, offers a ten-year statute of limitations, which enables prosecutors to bring new lawsuits that extend back through the entirety of the crisis period. Potential defendants must now wait an entire decade to see whether they are the subject of a civil suit. Second, as FIRREA is a tool for civil as opposed to criminal enforcement, the burden of proof is lower. Essentially, FIRREA offers the flexibility for prosecutors to pursue cases with a better chance of recovering tens of millions in penalties.
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