The saying goes that there are two certainties in life: taxes and death. But maybe that saying should be amended to include the False Claims Act. Last month, DOJ settled an FCA case brought against the estate of the former owner and president of a bank in Arkansas. United States v. Estate of Layton P. Stuart, et al., No. 1:15-cv-01044-RDM (D.D.C.). The case underscores just how far DOJ will go to enforce FCA claims, no matter whether the defendant has since left the building.
Earlier this year, DOJ filed suit against, and promptly settled with, the estate Layton P. Stuart, the former owner, president and CEO of One Financial Corporation and its wholly owned subsidiary, One Bank & Trust. The suit capped a peculiar series of events. DOJ alleged that Stuart and One Financial violated the False Claims Act by making false statements about the financial condition of One Financial and One Bank to induce the Department of the Treasury to invest Troubled Asset Relief Program (TARP) funds in One Financial. Specifically, the United States alleged that in 2008 and 2009, Stuart applied for a TARP investment on behalf of One Financial. As part of the application process, Stuart purportedly made false statements about the financial condition of One Financial and One Bank and about the intended use of the TARP funds. In particular, Stuart allegedly concealed serial frauds that he and other One Financial directors and One Bank executives had been committing, and intended to continue committing, on One Bank. The schemes involved Stuart’s diversion of One Bank funds for personal use, including Stuart’s purchase of luxury vehicles for his wife and children. For example, the investigation uncovered evidence that Stuart (1) had created a series of sham trusts that he used to divert money from Financial One; (2) had diverted $2.185 million into his personal accounts within two weeks of receiving TARP funds in 2009; and (3) had caused Financial One to incur over $17 million in losses.
Stuart was terminated from One Financial and One Bank in September 2012. Six months later, he passed away. However, it wasn’t until July 2015 that DOJ filed suit under the FCA. (In the interim, a civil forfeiture action had been filed against the assets of Stuart’s estate and the sham trusts he had created.) The civil forfeiture action was settled and dismissed contemporaneously with the False Claims Act settlement with the Stuart estate and trusts. Under these settlements, in addition to the $4 million recovered by the United States, $6.9 million will be received by One Bank and $4 million will be returned to the Stuart trusts.
Beyond stating the obvious — don’t make material misrepresentations when applying for federal funds — the peculiar facts of this case make it difficult to distill any takeaway lessons. What is clear, though, is that DOJ will continue to aggressively use the FCA to prosecute fraud regardless of whether the wrongdoer is deceased.