Although the Financial Institutions Reform, Recovery and Enforcement Act of 1989 (“FIRREA”) was passed more than 20 years ago in response to the savings and loan crisis, the Department of Justice (the “DOJ”) is using the law today to prosecute banks for alleged violations prior to the 2008 financial crisis. FIRREA targets conduct that affects any federally insured financial institution. It is a violation of FIRREA to (among other things) execute or attempt to execute a scheme to defraud a financial institution or to make false entries in the books of a financial institution, even if the government is not directly harmed.
The DOJ is using FIRREA’s whistleblower provision to encourage individuals to make claims against banks. Under FIRREA’s whistleblower provision, private individuals can submit confidential claims to the DOJ, and the DOJ has one year to investigate the whistleblower’s allegations. If the DOJ acts on a whistleblower’s claim and recovers penalties and/or damages, the individual whistleblower who initiated the claim is entitled to 20-30 percent of the first $1 million recovered, 10-20 percent of the next $4 million recovered and 5-10 percent of the next $5 million recovered, for a maximum total reward of $1.6 million. See 12 U.S.C. § 4205.
FIRREA actions filed in the last 12 months against banks have relied in part on whistleblower information and include matters such as mortgage sales to Fannie Mae and Freddie Mac, mortgage-backed securities issuances and setting foreign currency exchange rates.
FIRREA also has a 10-year statute of limitations and very liberal pre-suit discovery privileges for the government. These government-friendly provisions, combined with the whistleblower financial incentives, result in an environment where additional claims (regardless of their merit) are likely to be raised against banks from the 2008 financial crisis