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US v. Heinz May Bolster Expansive FIRREA Interpretation

Andrew W. Schilling & Caroline K. Eisner

June 11, 2015

The U.S. Department of Justice’s aggressive use of the Financial Institutions Reform, Recovery, and Enforcement Act to sue banks for fraud just received an unexpected boost, and from an unlikely source: In a criminal case decided last week,the Second Circuit endorsed an expansive approach to the application of FIRREA to frauds that “affect” a financial institution, including frauds in which the bank is not the target of the fraud.

While the case arose in the criminal context, its impact on civil FIRREA enforcement could be significant, as courts grapple with the government’s “reflective” theory of FIRREA. That theory posits that a financial institution can violate FIRREA by engaging in a fraud that “affects” itself. This controversial theory has been upheld in three district court cases in the Southern District of New York, one of which is currently on appeal to the Second Circuit.

Originally published in Law360; reprinted with permission.