I chuckled this morning when reading the paper. The big financial news this week is the Department of Justice suit against Bank of America for the sale of residential mortgage backed securities. The article claims the plaintiff’s bar “is abuzz” over the government’s use of a little known law called the Financial Institutions Reform, Recovery and Enforcement Act of 1989 – FIRREA for short. Although some lawyers may never heard of FIRREA, it has quickly become the weapon of choice for justice officials in bank fraud cases. Whistleblowers like the law as well because a companion statute allows cash awards.
Congress passed FIRREA shortly after the savings and loan crisis during the 1980’s. Although the law was originally drafted to address a wide range of regulatory shortcomings in the savings and loan industry, its anti-fraud provisions are used today to address problems throughout the banking industry. Its scope is not limited to savings and loans.
Prosecutors like the statute because its anti-fraud provisions have a lower burden of proof. The penalty provisions require prosecutors to prove their case by a mere preponderance of the evidence. That means they simply must show that the bank more likely than not committed a violation.
Traditionally, when the government wants to pursue wire or mail fraud charges, it must prove those claims beyond a reasonable doubt. That is high standard and cause investigators to spend years building a case. FIRREA, however, allows prosecutors to extract civil penalties of up to $1 million per day and sometimes more and all with a much lower burden of proof.
Regulators also like the FIRREA statute because it carries a very long statute of limitations – 10 years.
The penalty provisions of the law were originally used to prosecute officers and directors of failed banks but now the law is increasingly used to go after the banks themselves. Tuesday’s suit against Bank of American in a North Carolina federal court is the latest example.
We like the law because it allows whistleblowers to receive a piece of the action. The award provisions are not found in FIRREA itself but in a companion statute, FIAFEA – the Financial Institutions Anti-Fraud Enforcement Act of 1990. FIAFEA allows whistleblowers to bring their inside information to the Justice Department. If the government uses that information in a FIRREA case, the whistleblower is entitled to a sliding scale percentage of the recovery up to $1.6 million.
While the awards available under FIRREA / FIAFEA are often less than in traditional federal False Claims Act cases, the government’s newest strategy is to pursue both claims simultaneously. We first saw that in a case filed in Chicago two years ago.
For whistleblowers, filing a claim under FIRREA is certainly easier.
Is FIRREA an overlooked tool? We don’t think so. President Obama’s Mortgage Fraud Task Force filed many FIRREA cases as part of Operation Stolen Dreams. US attorneys across the United States are regularly using the new law. We hope that whistleblower advocates and lawyers soon discover the law and help put an end to abusive lending practices and mortgage fraud.
Post by Brian Mahany, Esq.
[Updated May 2019] MahanyLaw is a national boutique law firm representing whistleblowers throughout the United States. We represented the whistleblower in the FIRREA and False Claims Act case HUD initiated against Allied Home Mortgage. After a successful jury trial, the court entered a judgment against Allied for $296 million. We also represented two of the whistleblowers in the combined FIRREA and False Claims Act case against Bank of America that settled for $16.65 billion. $5 billion of that money was recovered under FIRREA.
If you believe you have inside “original source” information regarding fraud by a bank or mortgage lender, give us a call. We help whistleblowers receive the maximum cash awards under both the False Claims Act and FIRREA. All inquiries are confidential and protected by the attorney client privilege. For more information, contact attorney Brian Mahany at or by telephone at (414) 704-6731.
See also our cornerstone content on FIRREA, Bank Fraud and Whistleblower Awards.
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