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Understanding FIRREA's Reach: When Does Fraud "Affect" a Financial Institution?

Andrew W. Schilling

July 24, 2012

Recently, the Justice Department has made increasing - and increasingly aggressive - use of FIRREA, a civil penalty statute that it had all but ignored for more than two decades. Enacted in response to the S&L crisis, the Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA) authorizes the United States to bring a civil lawsuit whenever any person violates or conspires to violate any of fourteen enumerated criminal statutes, including not only bank fraud but also mail fraud, wire fraud, and making false statements. Although rarely used from 1989 to 2009, the Department of Justice (DOJ) seems to have recently rediscovered the statute. In the last two years, the DOJ has filed FIRREA claims against numerous financial institutions (in some cases, naming their top officers) in civil lawsuits that collectively seek potentially billions of dollars in civil penalties.

With prosecutors armed with this powerful tool, financial institutions and their counsel must understand FIRREA's scope and limitations. While broad in reach, one of the few limitations on the statute is the requirement that certain frauds are actionable under statute only if the conduct "affects" a federally insured financial institution. Therefore when a fraud "affects" a financial institution has become a key question.

Reprinted with permission from BNA's Banking Report 99 BBR 186, 7/24/12.