May 9, 2013
FIRREA Flies
Law360 interviewed me about the federal government’s continuing reliance on FIRREA in Prosecutors Get Last Laugh In $1B BofA Fraud Case (behind a paywall):
A controversial legal theory at the heart of a $1 billion mortgage fraud suit against Bank of America Corp. could become a go-to enforcement tool for civil prosecutors in the wake of a New York federal judge’s surprise ruling Wednesday, experts say.
U.S. District Judge Jed Rakoff pared the suit in a two-page order, granting BofA’s motion to dismiss False Claims Act allegations but keeping alive claims under the Financial Institutions Reform Recovery Enforcement Act, an anti-fraud law passed in the wake of the 1980s savings-and-loan crisis.
FIRREA allows civil prosecutors to sue entities that negatively “affect” the stability of federally insured banks. Seizing on a broad interpretation of that term, prosecutors have launched several suits in recent years accusing firms of affecting themselves, prompting an outcry from Wall Street and the defense bar.
Judge Rakoff said during an April 29 hearing that he was “troubled” by the government’s use of FIRREA to sue BofA, prompting many in the securities bar to be taken by surprise by Wednesday’s ruling. It comes two weeks after U.S. District Judge Lewis Kaplan refused to dismiss FIRREA claims against Bank of New York Mellon Corp. in a suit alleging the bank defrauded forex customers.
The rulings by Judges Kaplan and Rakoff suggest a consensus is beginning to form within the judiciary that FIRREA may be interpreted broadly, according to David Reiss, a professor at Brooklyn Law School. That could pose challenges for financial institutions, he said.
“There seems to be a greater interest now in pursuing financial wrongdoing,” he said. “With FIRREA, it’s a whole new game.”
And the law’s generous 10-year statute of limitations could give new life to allegations of misconduct during the financial meltdown, Reiss said.
“If FIRREA continues to be interpreted broadly, it ensures the government will still have a tool to bring claims,” he said.
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