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Editor: David Reiss
Brooklyn Law School

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March 14, 2013

FIRREA Factors for Determining Civil Penalties

By David Reiss

Andrew Schilling, Ross Morrison and Michelle Rogers wrote a short article (here, behind a paywall) about a recent case, U.S. v Menendez, No. C.V. 11-06313 (C.D. Cal. Mar. 6., 2013) that sets forth the eight factors that are to govern the determination of civil penalties under FIRREA.  Menendez had defrauded HUD by lying on a form submitted to HUD as to the existence of any “hidden terms or special understandings” relating to the underlying short sale transaction. (3) The court stated that the relevant factors are

  1. the good or bad faith of the defendant and the degree of his or her scienter;
  2. the injury to the public and loss or risk of loss for other persons;
  3. the egregiousness of the violation;
  4. the isolated or repeated nature of the violation;
  5. the defendant’s financial condition and ability to pay;
  6. the criminal fine that could be levied for the conduct;
  7. the amount the defendant sought to profit through the fraud; and
  8. the penalty range available under FIRREA. (10-13)

The case is important because it provides guidance, which has been lacking, to courts as they apply this untested statute to civil fraud cases.  And given that this case arose in the same jurisdiction in which the DoJ sued S&P, alleging violations of FIRREA, this guidance may be particularly useful.  On the other hand, the facts of this case (dealing with one instance of fraud by one individual) are quite different from those that in the other cases that the government has brought pursuant to FIRREA, which typically involve allegations of fraud by large financial institutions.

As a side note, it is interesting that the federal government took full advantage of FIRREA’s ten year statute of limitations as it filed this suit in 2011 for actions that occurred in 2002.

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