Florian Homm, a German hedge fund manager prosecuted by the United States for wrongdoing in connection with the financial crisis, fled Europe in 2008 under cover of darkness on a private plane with cash stuffed in his underwear. He hid out in South America for five years – the length of the statute of limitations generally applicable to most United States federal criminal cases. When he emerged and trumpeted his return to high society in 2013, believing that the statute of limitations on any possible United States criminal claims against him had run, he was arrested in Italy on U.S. federal fraud charges.
Homm’s belief was wrong because unbeknownst to him and his advisors, United States prosecutors had utilized one of the many statute of limitations extenders at its disposal. Specifically, the government obtained a Mutual Legal Assistance Treaty (MLAT) to obtain foreign evidence, thereby securing a three-year extension of the statute of limitations. In an odd but lucky twist for Homm, he was released from an Italian jail in 2014. Homm’s attorneys had filed appeals in both criminal and administrative courts in Italy as well as the European Court of Human Rights. Although none of the appeals were successful, the European Court of Human Rights took long enough to decide the matter that the Italian rules on how long a defendant could be held pending extradition were triggered such that Homm’s Italian jailers released him without warning.
Once released, Homm quickly high-tailed it out of town and beyond the reach of United States authorities. He is rumored to be in Germany, a country that does not extradite its own citizens, and is considered a fugitive by the United States. Although he is not likely to face trial in the United States, his case makes the point that a strict application of the five year limitations period has not held the government back from pursuing cases related to the financial crisis.
Homm’s case also is a warning to defense attorneys who should be wary of counseling clients that the government’s time to pursue wrongdoing related to the 2008 financial crisis has definitively lapsed. 2013 was believed by many to be the final year the government could pursue criminal cases resulting from the 2008 financial crisis because of the five-year statute of limitations. 2013 came and went, however, and the Department of Justice continued to publicize its intended pursuit of the fallout over subprime lending practices and mortgage-backed securities.
The flames of the government’s enforcement efforts post-2013 have been fueled by rampant criticism that the government had not been aggressive enough in its pursuit of wrongdoing and failed to hold accountable responsible individuals. In response, the Justice Department announced renewed efforts focusing on individuals responsible for the financial crisis and continued its pursuit of big money settlements with corporate entities.
Recently, however, a number of news articles proclaim the end of financial crisis-related prosecutions, which raises the question, is it really over? The answer is, probably not, but maybe soon.
Over the years, federal prosecutors have taken advantage of a number of creative ways around the five-year statute of limitations. First, prosecutors were aided by Congress with the passage of the Dodd–Frank Wall Street Reform and Consumer Protection Act in 2011, which lengthened the time limit for the Justice Department to bring certain criminal securities fraud cases to six years.
Second, in cases with an international component, like Homm’s, the government has the ability to seek a suspension of the statute of limitations for up to three years pursuant to 18 U.S.C. § 3292. Section 3292 allows the government to file an ex parte application for tolling of the relevant statute of limitations while awaiting the production of evidence located in a foreign country pursuant to an MLAT. Given the increasing number of cross-border transactions and relationships, Section 3292 has played a correspondingly more important role in white-collar criminal prosecutions. As long as the Section 3292 motion is filed by the government prior to the expiration of the statute of limitations, the period of time within which the government can bring charges will be on hold until the foreign evidence is produced or for a three year period, whichever comes first. This means that the government may well have waited until almost the entire five-year period had expired and then filed its motion under Section 3292 to effectively lengthen the limitations statute to eight years.
Third, the government has even gone so far as to employ the Wartime Suspension of Limitations Act, a 1948 law that gives prosecutors unlimited time to pursue crimes during times of war. Between 2008 and 2012, the Wall Street Journal reported that the act was invoked 12 times due to the war in Afghanistan. Prosecutors in Manhattan relied on the Act in a mortgage fraud suit against Wells Fargo & Co. in 2012. The district court upheld the government’s use of the act to suspend the limitations period and Wells Fargo subsequently settled the case for $1.2 billion.
Finally, prosecutors have sought to avoid the five-year statute of limitations that may hamstring them in criminal prosecutions by brushing the dust off another old statute – the Financial Institutions Reform, Recovery and Enforcement Act of 1989. The FIRREA was crafted in response to the savings and loan crisis of the late 1970s and early 1980s and allows the Justice Department to seek civil financial penalties (hence, take advantage of a lower burden of proof) for violations of certain enumerated criminal statutes. The FIRREA comes with a generous 10-year statute of limitations, and so has become the Justice Department’s weapon of choice in pursuing wrongdoing associated with the 2008 financial crisis. The government has obtained several massive financial settlements from financial institutions under the FIRREA, including a $16.65 billion settlement with Bank of America in 2014 for conduct dating back to 2004 and a $7 billion settlement with Citibank in 2014 for conduct that occurred in 2006-2007.
Even this ten-year window may be closing soon, however, given that many of the mortgage backed securities at issue were sold prior to the crisis of 2008. Despite this, individuals and financial institutions with potential liability should be aware of the myriad possible statute extenders available to the government. While their use recently is more prevalent in cases related to the financial crisis, these extenders generally may be available to prosecutors in all federal criminal cases.
From The Insider Blog: White Collar Defense & Securities Enforcement.