In the wake of the savings and loan crisis of the 1980s, Congress passed the Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA) to provide greater oversight of the nation’s banks and federally insured financial institutions. In addition to strengthening criminal penalties, FIRREA empowered the U.S. Department of Justice (DOJ) to sue financial institutions and obtain substantial civil penalties for wrongful acts, including false entries in bank records, false statements in loan applications, embezzlement, acceptance of bribes, bank fraud, and wire fraud or mail fraud affecting a financial institution.
Within a few years of passing FIRREA, Congress passed the Financial Institutions Anti-Fraud Enforcement Act (FIAFEA) which included provisions aimed at incentivizing insiders to come forward with information about significant fraud occurring within banks and financial institutions.
Then in 2009, in the midst of the Great Recession, Congress amended the federal False Claims Act (FCA) to make cases alleging banking or mortgage fraud easier to successfully pursue. Most, if not all, state FCAs were similarly amended.
Persons with knowledge of activities prohibited by FIRREA and FIAFEA occurring at a federally insured financial institution can present a confidential declaration to the DOJ and, thereafter, be eligible for a share in any resulting recoveries in an amount of up to $1.6 million. The FIAFEA statute also created a companion program to pay financial rewards to individuals who confidentially assist the United States in identifying and locating assets used to satisfy outstanding FIRREA fines and judgments.
The confidential declaration must provide specific facts and identify a particular transaction or transactions giving rise to FIRREA liability; it must also provide at least one factual element necessary to the case that was previously unknown to the government. The declaration should include the names of material witnesses and the nature and location of documentary evidence. The FIAFEA declaration cannot be based on information that has been publicly disclosed unless the whistleblower themself is the original source of that information. The FIAFEA declaration and the whistleblower’s identity remain confidential while the DOJ investigates the matter.
The DOJ has up to a year to decide either to formally accept the claim and open an official investigation or to formally decline the claim. If the DOJ has not addressed the allegations raised in the FIAFEA declaration more than a year after receiving the declaration, the whistleblower may then seek to compel the U.S. Attorney General to either: (1) prosecute the action; or (2) award a contract to private counsel of the whistleblower’s choosing to prosecute the claim.
The qui tam provisions of the FCA may be used to bring a complaint under seal alleging banking or mortgage related fraud. In 2009, in the midst of the Great Recession, Congress amended the federal FCA to make such cases easier to successfully pursue. Most, if not all, state FCAs were similarly amended. Unlike the DOJ whistleblower programs under FIRREA and FIAFEA, there is no monetary cap on the award to the whistleblower. Thus, a whistleblower may realize a much larger award for the same misconduct if the case succeeds under the FCA as opposed to under FIRREA or FIAFEA.
Examples of successful FCA cases involving banking or mortgage fraud include:
The above are just some examples of the many different types of bank and mortgage fraud. If you think that you have information related to bank and mortgage fraud, please contact us for a free, confidential consultation. As former prosecutors, we have investigated and convicted financial professionals for money laundering, bank fraud, bribery, falsification of financial records, and violations of the Bank Secrecy Act. We have experience working with the Federal Deposit Insurance Corporation, the Federal Reserve, and other federal agencies charged with overseeing and regulating banks, mortgage lending companies, and financial services firms.