Academic journal article ABA Banking Journal

FIRREA-DOJ's Latest Weapon: 1989 Law Keeps Banks at Risk for Ten Years Past the Financial Crisis

Academic journal article ABA Banking Journal

FIRREA-DOJ's Latest Weapon: 1989 Law Keeps Banks at Risk for Ten Years Past the Financial Crisis

Article excerpt

If bankers were asked in 1990 if they liked FIRREA, most would probably say "no," thinking that they were being questioned about an intestinal virus. By 2013, thanks to the Department of Justice, a little known civil fraud provision in the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 feels like a looming pandemic to banks of all sizes.

On Oct. 23, 2013, Bank of America caught a case of FIRREA when a Manhattan federal jury found the bank and a former Countrywide executive civilly liable for fraudulently selling approximately 30,000 loans to Fannie Mae and Freddie Mac in 2007 and 2008. According to the DOJ in U.S. v. Bank of America Corp., Countrywide used its mortgages program called "Hustle" to fast-track toxic mortgages to increase revenue, and then it dumped those mortgages on the government.

FIRREA, enacted in response to the savings and loan crisis, allows the government to pursue civil investigations and bring civil suits for committing certain offenses that affect a federally insured financial institution. The potential offenses include bank mail and wire fraud.

It is clear that banks are still at risk for litigation related to the financial crisis. The government has up to ten years after a violation to file suit under FIRREA. This is double the typical five-year statute of limitations in other antifraud actions.

The statute also requires a lower burden of proof to prove a violation than the higher standard required in criminal prosecutions--another reason FIRREA may become the government's preferred theory of liability. …

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