FIRREA Whistleblower Lawyers
The Financial Institutions Reform, Recovery, and Enforcement Act, commonly referred to as FIRREA, authorizes the Attorney General to bring a civil lawsuit for fraud involving a federally-insured financial institution. Although it was enacted in response to the savings and loan crisis of the 1980s, FIRREA has been a key tool in the government’s arsenal for prosecuting mortgage fraud in the aftermath of the financial crisis of 2008. The Department of Justice (DOJ) has utilized several important aspects of the law to facilitate prosecution of financial wrongdoing by financial institutions. The burden of proof under FIRREA is lower than many other laws used to prosecute fraudulent conduct. FIRREA also has a ten-year statute of limitations, which is much longer than the typical period of three to five years applicable to most civil lawsuits.
“The U.S. will pay up to $1.6 Million to FIRREA whistleblowers for information about fraud involving federally-insured financial institutions.”
The DOJ has used FIRREA, sometimes in conjunction with the False Claims Act, to assert claims for enormous penalties against some of the largest financial institutions in the country. There have been a number of significant settlements for misconduct related to mortgage backed securities and residential mortgages under the law. Since 2014, the Department of Justice has recovered more than $68 billion from separate settlements involving allegations of FIRREA violations against major financial institutions.
FIRREA offers whistleblowers another program, separate from the False Claims Act, to report bank fraud that can potentially lead to a reward for information involving certain forms of financial fraud. Whistleblowers can receive up to $1.6 million for information involving FIRREA violations that leads to a successful monetary recovery.
The History of FIRREA and FIAFEA
FIRREA was passed in 1989 to restore public confidence following the savings and loan crisis in the 1980s. It created a comprehensive regulatory and enforcement structure that established higher minimum capital requirements and set stricter operating standards for all savings institutions. The Resolution Trust Corporation was established as part of FIRREA to liquidate the assets of savings and loan associations declared insolvent in the 1980s.
FIRREA also strengthened the civil enforcement powers of federal regulatory agencies against individuals and entities who perpetrate fraud involving federally-insured financial institutions. A violation of one of the fourteen criminal statutes enumerated in FIRREA can result in considerable civil monetary penalties. The statute imposes penalties up to $1,963,870 per violation, and up to $9,819,351 for a continuing violation. 12 U.S.C. § 1833a(b)(1)-(2). In cases where a violation results in a pecuniary gain, or a pecuniary loss to someone other than the violator, the civil penalty can exceed the statutory amount and reach as high as the amount of gain or loss. 12 U.S.C. § 1833a(b)(3).
In the prosecution of FIRREA violations, the government is only required to prove its case by a “preponderance of the evidence” rather than the higher “beyond a reasonable doubt” standard applicable in criminal cases. The law also grants the government broad pre-trial investigation powers which allows it to issue administrative subpoenas for document productions and depose key witnesses without judicial approval.
In a separate piece of legislation enacted shortly after FIRREA, the government is authorized to provide payment for information about violations of FIRREA. The Financial Institutions Anti-Fraud Enforcement Act (FIAFEA) of 1990 authorizes rewards to eligible individuals who submit a declaration to the Attorney General of the United States concerning a violation of 12 U.S.C. 1833a. A FIAFEA whistleblower can receive a reward of 20 to 30 percent of any recovery up to the first $1 million recovered, 10 to 20 percent of the next $4 million recovered, and 5 to 10 percent of the next $5 million recovered.
The civil monetary penalties imposed for FIRREA violations can be potentially devastating. Consequently, most financial institutions facing charges under FIRREA eventually settle with the DOJ to limit their potential exposure.
In September 2018, LendingClub, an online lender, agreed to pay $2 million in settlement of its alleged violations of FIRREA. The United States alleged that LendingClub made misrepresentations to its FDIC-insured loan originator, WebBank, from January 2009 to September 2010. As a result of the alleged misrepresentations, WebBank originated over 200 loans to borrowers who did not satisfy WebBank’s credit requirements. According to the government’s complaint, LendingClub made the misrepresentations to increase the volume of loans available for investment on its platform and to meet its monthly loan origination goals.
In August 2018, the Department of Justice (DOJ) announced that Wells Fargo and several affiliates agreed to pay a civil penalty of nearly $2.1 billion to settle allegations involving misrepresentations made to investors during the housing bubble and subsequent financial crisis of 2008. The DOJ alleged that Wells Fargo originated and sold tens of thousands of loans between 2005 and 2007 that it knew contained misstated income information and were of lesser quality than represented by the company. It was also alleged that investors, including federally-insured financial institutions, lost billions of dollars through investments in residential mortgage-backed securities with loans originated by Wells Fargo.
Royal Bank of Scotland
In August 2018, DOJ announced a $4.9 billion settlement with The Royal Bank of Scotland Group (RBS) to resolve allegations that RBS misled investors in the underwriting and issuing of residential mortgage-backed securities between 2005 and 2008. DOJ alleged that RBS earned hundreds of millions of dollars while ensuring that it received repayment of billions of dollars it had lent to originators to fund the faulty loans underlying residential mortgage-backed securities. RBS allegedly used the securities to transfer the risk of the loans, and billions in subsequent losses, onto unsuspecting investors all over the world. The penalty is the largest imposed by DOJ on a single entity under FIRREA for financial crisis-era misconduct.
In April 12, 2019, the U.S. Department of Justice (DOJ) announced that General Electric (GE) agreed to pay $1.5 billion to resolve allegations relating to subprime residential mortgage loans originated by its subsidiary, WMC Mortgage (WMC). The DOJ alleged that WMC originated more than $65 billion dollars in mortgage loans between 2005 and 2007. During that period, WMC loan analysts, who were responsible for underwriting mortgage loans, were allegedly encouraged to approve loans in order to meet volume targets, even where the loan applications failed to meet the company’s published underwriting guidelines. The WMC loan analysts allegedly received additional compensation based on the number of mortgages they approved.
Investment banks that purchased WMC’s loans sometimes declined to buy certain other mortgage loans from WMC because of defects in the loan file or suspected fraud. When an investment bank declined to purchase a loan, it typically notified WMC of its reasons for rejecting the file, including the defects it identified. WMC allegedly re-offered some of these defective loans to a second potential purchaser as part of a residential mortgage-backed security. However, WMC allegedly failed to disclose that the mortgage had previously been rejected, or the reasons why the first potential purchaser determined that the mortgage had defects. The DOJ sought civil penalties under FIRREA for violations of various predicate criminal offenses, including wire and mail fraud, because the violations had affected a federally-insured financial institution.
In May 2017, Financial Freedom, a reverse mortgage servicer, agreed to pay more than $89 million to resolve allegations that it violated the False Claims Act and FIRREA in connection with its participation in a federally-insured reverse mortgage program. Financial Freedom allegedly attempted to obtain insurance payments for interest from the Federal Housing Administration despite failing to disclose on government filings that the mortgagee was not eligible for the interest payments because it had failed to meet various deadlines. From 2011 to 2016, the mortgagees on certain reverse mortgage loans allegedly obtained additional interest that they were not entitled to receive as a result of Freedom Financial’s actions.
In January 2017, the Department of Justice announced that VW agreed to pay a total of $4.3 billion in settlement of claims arising from the 2015 emissions scandal known as “Dieselgate.” The Environmental Protection Agency found that Volkswagen had intentionally programmed its diesel engines to activate their emissions controls only during laboratory emissions testing to meet U.S. standards. As part of the settlement, VW agreed to pay $50 million in civil penalties for alleged violations of FIRREA. VW allegedly offered competitive financing terms by purchasing vehicle loans and leases from dealers, some of which involved diesel vehicles with emissions-cheating programming. The vehicles served as collateral for the underlying the loan and lease transactions. The DOJ alleged that certain of these loans and leases were pooled together to create asset-backed securities, some of which were purchased by federally-insured financial institutions.
Our whistleblower attorneys have helped current and former employees report their employers’ misconduct under state and federal whistleblower laws. McEldrew Young attorneys have helped the government recover billions of dollars lost due to fraud. Our attorneys can assist you through all stages of the process while maintaining your confidentiality.