ABA Banking Journal - December 2013 - (Page 38)

legal issues by Megan Michiels FIRREA-DOJ's latest weapon 1989 law keeps banks at risk for ten years past the financial crisis 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. The statute carries hefty civil money penalty provisions ranging from $1 million per violation, up to $5 million per day for continuing violations, as well as recovery of the value of any gains or investor losses from the alleged misconduct. Given those potential liabilities, banks can expect high legal costs in defending a FIRREA case from investigation to final disposition by a court. The recent decision against Bank of America marked the first time the DOJ successfully used the FIRREA civil money penalty provision against a bank for residential mortgage fraud, but it won't be the last. Other participants in the mortgage process chain are likely targets of FIRREA liability claims. And the DOJ is using the FIRREA provisions in cases of securities fraud, money 38 | ABA BANKING JOURNAL | December 2013 laundering, and currency trading fraud. Several law firms have reported that DOJ has filed more FIRREA lawsuits in the last three years than in the prior two decades combined. Penalties in the Bank of America case have not yet been determined, but are expected to be at least hundreds of millions of dollars. An appeal is expected. For now, financial institutions of all sizes can expect the government to continue to invoke FIRREA as the legal basis for claims. Whether new suits also will go after specific bank executives remains unclear. If DOJ has its way, FIRREA will continue to be a hard pill for banks to swallow without an antidote in sight. n Megan Michiels (mmichiels@ aba.com) is senior counsel, uniform laws, for the American Bankers Association. Photo: shutterstock.com If bankers were asked in 1990 if they http://www.SHUTTERSTOCK.COM

Table of Contents for the Digital Edition of ABA Banking Journal - December 2013

Chairman's View
Editor's Column
Bank Notes
Picture This
Is wealth management a good fit?
Tech Topic
What's Ahead?
New diversity standards cover workplace and suppliers
Compliance Inbox
ABA At Your Service
Legal Issues
First Person

ABA Banking Journal - December 2013

https://www.nxtbook.com/naylor/BAKS/BAKS0515
https://www.nxtbook.com/naylor/BAKS/BAKS0415
https://www.nxtbook.com/naylor/BAKS/BAKS0315
https://www.nxtbook.com/naylor/BAKS2/BAKS1014
https://www.nxtbook.com/naylor/BAKS2/BAKS0914
https://www.nxtbook.com/naylor/BAKS2/BAKS0814
https://www.nxtbook.com/naylor/BAKS2/BAKS0714
https://www.nxtbook.com/naylor/BAKS2/BAKS0614
https://www.nxtbook.com/naylor/BAKS2/BAKS0514
https://www.nxtbook.com/naylor/BAKS2/BAKS0414
https://www.nxtbook.com/naylor/BAKS2/BAKS0314
https://www.nxtbook.com/naylor/BAKS2/BAKS0214
https://www.nxtbook.com/naylor/BAKS2/BAKS0114
https://www.nxtbook.com/naylor/BAKS2/BAKS1213
https://www.nxtbook.com/naylor/BAKS2/BAKS1113
https://www.nxtbook.com/naylor/BAKS2/BAKS1013
https://www.nxtbook.com/naylor/BAKS2/BAKS0913
https://www.nxtbook.com/naylor/BAKS2/BAKS0813
https://www.nxtbook.com/naylor/BAKS2/BAKS0713
https://www.nxtbook.com/naylor/BAKS2/BAKS0613
https://www.nxtbook.com/naylor/BAKS2/BAKS0513
https://www.nxtbook.com/naylor/BAKS2/BAKS0413
https://www.nxtbook.com/naylor/BAKS2/BAKS0313
https://www.nxtbook.com/naylor/BAKS2/BAKS0213
https://www.nxtbook.com/naylor/BAKS2/BAKS0113
https://www.nxtbook.com/naylor/BAKS2/BAKS1212
https://www.nxtbook.com/naylor/BAKS2/BAKS1112
https://www.nxtbook.com/naylor/BAKS2/BAKS1012
https://www.nxtbook.com/naylor/BAKS2/BAKS0912
https://www.nxtbook.com/naylor/BAKS2/BAKS0712
https://www.nxtbook.com/naylor/BAKS2/BAKS0612
https://www.nxtbook.com/naylor/BAKS2/BAKS0512
https://www.nxtbook.com/naylor/BAKS2/BAKS0412
https://www.nxtbook.com/naylor/BAKS2/BAKS0312
https://www.nxtbook.com/naylor/BAKS2/BAKS0212
https://www.nxtbook.com/naylor/BAKS2/BAKS0112
https://www.nxtbook.com/naylor/BAKS2/BAKS1211
https://www.nxtbook.com/naylor/BAKS2/BAKS1111
https://www.nxtbook.com/naylor/BAKS2/BAKS1011
https://www.nxtbook.com/naylor/BAKS2/BAKS0911
https://www.nxtbook.com/naylor/BAKS2/BAKS0811
https://www.nxtbook.com/naylor/BAKS2/BAKS0711
https://www.nxtbook.com/naylor/BAKS2/BAKS0611
https://www.nxtbook.com/naylor/BAKS2/BAKS0511
https://www.nxtbook.com/naylor/BAKS2/BAKS0411
https://www.nxtbook.com/naylor/BAKS2/BAKS0311
https://www.nxtbook.com/naylor/BAKS2/BAKS0211
https://www.nxtbook.com/naylor/BAKS2/BAKS0111
https://www.nxtbook.com/naylor/BAKS2/BAKS1210
https://www.nxtbook.com/naylor/BAKS2/BAKS1110
https://www.nxtbook.com/naylor/BAKS2/BAKS1010
https://www.nxtbook.com/naylor/BAKS2/BAKS0910
https://www.nxtbook.com/naylor/BAKS2/BAKS0810
https://www.nxtbookmedia.com