FIRREA Whistleblower Lawyers
The Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA) authorizes the U.S. Attorney General to bring a civil lawsuit for fraud involving a federally insured financial institution. FIRREA allows the government to impose significant civil penalties for violations of certain federal criminal statutes.
Although originally enacted in response to the savings and loan crisis of the 1980s, FIRREA has been a valuable tool for the government in prosecuting mortgage fraud in the aftermath of the financial crisis of 2008. The Department of Justice (DOJ) utilizes several important provisions of the statute to assist in prosecuting the misconduct of financial institutions. The burden of proof under FIRREA is lower than in many other statutes used to prosecute fraud. FIRREA also has a ten-year statute of limitations, which is much longer than the typical period of three to five years applicable to most civil lawsuits.
The DOJ has used FIRREA in conjunction with the False Claims Act to assert claims for exorbitant penalties against some of the largest financial institutions in the country. There have been a number of significant settlements for misconduct related to mortgage-backed securities and residential mortgages arising from FIRREA violations. Since 2011, the Department of Justice has recovered more than $89 billion from settlements involving allegations of FIRREA violations, some of which also included allegations of False Claims Act violation.
The DOJ is also using FIRREA to prosecute fraud in connection with the Paycheck Protection Program (PPP) since fraudsters make misrepresentations to federally insured banks on their loan applications. In January 2021, the DOJ entered into the first civil settlement involving allegations of PPP fraud. As part of the settlement, the defendants admitted they made false statements to federally insured banks that their company was not in bankruptcy in order to have their PPP loan application approved. The settlement resolved allegations that defendants’ conduct violated FIRREA as well as the False Claims Act.
The History of FIRREA
FIRREA was passed in 1989 to restore public confidence in lending institutions following the savings and loan crisis of the 1980s. It created a regulatory and enforcement structure that established higher minimum capital requirements and set stricter operating standards for all savings institutions. The Resolution Trust Corporation was established as part of FIRREA to liquidate the assets of savings and loan associations that were declared insolvent during the 1980s.
FIRREA also strengthened the civil enforcement powers of federal regulatory agencies against those perpetrating fraud involving federally insured financial institutions. FIRREA includes a list of fourteen criminal statutes which serve as predicate offenses. A violation of any one of these offenses can result in substantial civil monetary penalties. As adjusted for inflation in 2023, the statute imposes penalties up to $2,372,677 per violation, and up to $11,010,620 for a continuing violation. In cases where a violation results in a pecuniary gain, or a pecuniary loss to someone other than the violator, the civil penalty can exceed the statutory amount and reach as high as the amount of the gain or loss.
In prosecuting FIRREA violations, the government need only prove its case by a “preponderance of the evidence” rather than the higher “beyond a reasonable doubt” standard that applies in criminal cases. The law also grants the government broad pre-trial investigational powers that allows the DOJ to issue administrative subpoenas for documents as well as depose key witnesses without the need for court approval.$11,863,393
The Financial Institutions Anti-Fraud Enforcement Act (FIAFEA)
The Financial Institutions Anti-Fraud Enforcement Act (FIAFEA) of 1990 was enacted shortly after FIRREA. FIAFEA allows a private individual to file a declaration with the U.S. Attorney General that involves a violation of any of the predicate offenses listed in 12 U.S.C. § 1833a(c)(1)-(3), including:
- Receiving commissions or gifts by an officer, director, employee, agent, or attorney of a financial institution for procuring loans, 18 U.S.C. § 215;
- Embezzlement, theft or willful misapplication of funds by an officer, director, agent or employee of a bank, 18 U.S.C. § 656;
- Embezzlement, theft or willful misapplication of funds by an officer, director, agent or employee of a lending, credit or insurance institution; 18 U.S.C. § 657;
- Issuing or assigning a bank note without authorization, or making false entries in a book, report or statement of a bank by an officer, director, agent or employee, 18 U.S.C. § 1005;
- Issuing or assigning a debt instrument without authorization, or making false entries in a book, report or statement of a federal credit institution by an officer, director, agent or employee, 18 U.S.C. § 1006;
- Knowingly making or inviting reliance on a false, forged, or counterfeit statement or document for the purpose of influencing the action of the Federal Deposit Insurance Corporation, 18 U.S.C. § 1007;
- Knowingly making a false statement or report, or willfully overvaluing land, property or security, for the purpose of influencing the action of the Federal Housing Administration or specific agencies within the Department of Agriculture, 18 U.S.C. § 1014;
- Defrauding a financial institution or obtaining funds from a financial institution through false or fraudulent pretenses, representations, or promises, 18 U.S.C. § 1344;
- Making false, fictious or fraudulent claims to any person or officer in the civil or military service of the United States, or to any related agency or department, 18 U.S.C. § 287;
- Falsifying or concealing a material fact through trickery or deception; or making a materially false or fraudulent statement or representation; or making or using a false writing or document in any matter within the jurisdiction of the United States government, 18 U.S.C. § 1001;
- Concealing an asset or property from certain government agencies while acting in the capacity as conservator, receiver or liquidating agent, 18 U.S.C. § 1032;
- Devising a scheme to defraud or obtain money or property by fraudulent means through the United States Postal Service, 18 U.S.C. § 1341;
- Devising a scheme to defraud or obtain money or property by fraudulent means through interstate transmission of wire, radio, or television communication, 18 U.S.C. § 1343
- Making a false statement or overvaluing a security to obtain a loan; to influence the action of the Small Business Administration; or obtain money or property under Chapter 14A of Title 15 of the United States Code, 15 U.S.C. § 645(a)
An eligible FIAFEA whistleblower can receive a reward of 20% to 30% of any recovery up to the first $1 million recovered; 10% to 20% of the next $4 million; and 5% to 10% of the next $5 million, up to a maximum of $1.6 million.
Noteworthy FIRREA Settlements
Physician Partners of America LLC
Vivint Smart Homes
Multiple New York-based Real Estate Companies
Many of the illegal acts carried out Wells Fargo employees involved creating false records or misusing customers’ identities. Wells Fargo entered a civil settlement agreement under FIRREA based on the creation of false bank records. The $3 billion settlement payment included resolution of the FIRREA violations.
Former Deutsche Bank Executive
Investment banks that purchased WMC’s loans sometimes declined to buy certain other mortgage loans from the company due to defects in the loan file or suspected fraud. When an investment bank declined to purchase a loan, it typically notified WMC of its reasons for rejecting the file, including the defects identified. WMC allegedly re-offered some of these defective loans to a second potential purchaser as part of a residential mortgage-backed security but failed to disclose that the mortgages had previously been rejected, or the reasons why the first potential purchaser determined they had defects. The DOJ sought civil penalties under FIRREA for violations of various predicate criminal offenses, including wire and mail fraud, because the violations had affected a federally-insured financial institution.
BMO Harris Bank
Royal Bank of Scotland
Allied Home Mortgage
The FIRREA violations were based on VW allegedly offering competitive financing terms through its purchase of vehicle loans and leases from dealers. Some of the leases and loans involved diesel vehicles that contained the emissions-cheating programming which served as collateral for the underlying transactions. The DOJ alleged that certain of these loans and leases were pooled together to create asset-backed securities, some of which were purchased by federally-insured financial institutions which created liability under FIRREA.