FIRREA (Bank Fraud) Program
FIRREA was enacted in 1989 in response to the savings and loan crisis. A unique civil money penalty provision went virtually unused in any significant way by the Justice Department until the 2008 financial crisis. 12 U.S.C. § 1833a.
While at the Justice Department, Renée Brooker of our firm had direct oversight responsibility for investigations and litigation against financial institutions, including banks, mortgage companies and servicers, under FIRREA. She helped coordinate DOJ’s use of FIRREA to the 2008 financial crisis and to later violations.
FIRREA authorizes the Department to seek civil money penalties against individuals and entities that violate any one or more of a dozen criminal predicate statutes, including but not limited to, mail and wire fraud and bank fraud—statutes that are used with relative frequency by criminal divisions of the United States Attorneys’ offices.
Certain predicate acts, such as mail and wire fraud, that deal specifically with banks, financial institutions or financial regulatory agencies, even provide for liability where the financial harm is to the financial institution that is itself the subject of the investigation or the wrongdoer.
There are also statutory provisions that allow whistleblowers—called “declarants”—to serve the Attorney General with a complaint and potentially recover a declarant’s award of up to $1.6 million.
FIRREA is a tool the Department of Justice has shown a reinvigorated use of, aimed particularly at the financial services industry in the last five or so years. FIRREA gives the government broad authority to bring civil penalty claims with some significant advantages to the government and in some cases, an alternative benefit not offered by the False Claims Act.
FIRREA allows the United States a civil remedy to pursue fraud that does not involve taxpayer money. Assuming the requirements of FIRREA are met, FIRREA presents an opportunity for the United States to pursue a company for financial remedies when it otherwise would not have redress under the False Claims Act. Also, notably, FIRREA has less stringent requirements to establish liability than under the predicate criminal statutes, which form the basis for the civil penalty action. To prove a civil penalty case, the United States need only show that a criminal violation has occurred by a preponderance of the evidence, rather than being required to meet the higher standard of “beyond a reasonable doubt.
In addition, where the Department of Justice cannot meet the statute of limitations under the False Claims Act, which generally is six years, the FIRREA statute provides a generous ten year statute of limitations.
As a result of these and other advantages of FIRREA, and in light of the powerful results that have been realized, the Justice Department will increase its use of this tool in the upcoming decade. The United States has not kept statistics on its FIRREA recoveries in the same way it has its False Claims Act recoveries, but in the last several years, its most significant recoveries have been under FIRREA.
- August 1, 2018 — Wells Fargo Paid $2.09 Billion Penalty for Allegedly Misrepresenting Quality of Loans Used in Residential Mortgage-Backed Securities.
- October 6, 2017 - Pacific Western Bank (“PacWest”) paid $1.75 million to resolve allegations that First California Bank, which PacWest acquired in 2013, violated FIRREA by facilitating the embezzlement scheme of Kinde Durkee.
- January 17, 2017 - Deutsche Bank paid $7.2 billion settlement relating to allegations that Deutsche Bank misled investors in the packaging, securitization, marketing, sale and issuance of residential mortgage-backed securities (RMBS) between 2006 and 2007.
- January 11, 2017 - Volkswagen paid $50 million in civil penalties for alleged violations of FIRREA for the sales and leasing of certain VW vehicles, including the defeat-device vehicles, by offering competitive financing terms by purchasing from dealers certain automobile retail installment contracts (i.e. loans) and leases entered into by customers that purchased or leased certain VW vehicles, as well as dealer floorplan loans.
- November 21, 2016 - Ally Financial Inc. paid $52 million to settle allegations that its subsidiaries acted improperly in relation to 10 subprime residential mortgage backed securities (RMBS) in 2006 and 2007.
- April 11, 2016 – Goldman Sachs paid a $5.06 billion settlement with Goldman Sachs related to Goldman’s conduct in the packaging, securitization, marketing, sale and issuance of residential mortgage-backed securities (RMBS) between 2005 and 2007.
- February 11, 2016 - Morgan Stanley paid a $2.6 billion penalty to resolve claims related to Morgan Stanley’s marketing, sale and issuance of residential mortgage-backed securities (RMBS).
- March 19, 2015 – the Bank of New York Mellon paid $714 million related to allegations that BNYM engaged in fraud and other misconduct when providing foreign exchange (“FX”) services to its customers.
- November 19, 2013 – JPMorgan Chase paid a $13 billion settlement to resolve federal and state civil claims arising out of the packaging, marketing, sale and issuance of residential mortgage-backed securities (RMBS) by JPMorgan, Bear Stearns and Washington Mutual prior to Jan. 1, 2009.