As we have previously discussed, the United States Attorney's Office for the Southern District of New York sued Wells Fargo and Bank of America/Countrywide for residential mortgage fraud using both the False Claims Act and the Financial Institutions Reform, Recovery, and Enforcement Act of 1989, 12 U.S.C. § 1833a (FIRREA). FIRREA was passed during the financial crisis that was the savings and loan debacle of the late 1980's and proved to be a very effective tool for prosecutors. In the last year or so, the law has been rediscovered, taken from the shelf, dusted off and put back into battle by the Justice Department.
A recent ruling in a different case (brought by DOJ against The Bank of New York Mellon ("BNYM" or the "Bank") and one of its employees, David Nichols under FIRREA alleging the bank overcharged customers for trading currencies) has bolstered the DOJ's argument against motions to dismiss filed by Wells Fargo and Bank of America/Countrywide. Basically, in the BNMY case, the defendants argued that the FIRREA language that misconduct must "affect a federally insured financial institution" means a financial institution other than the defendant; the court rejected that argument and in a well reasoned opinion relying on a number of precedents, concluded that indeed a defendant financial institution could be liable under FIRREA if the misconduct it engaged in "affected" itself. This is essentially the same argument/defense that Wells Fargo and Bank of America/Countrywide are making in the case against them pending before U.S. District Judge Rakoff which was heard on April 29, 2013; the U.S. Attorney has informed Judge Rakoff of the other decision and cited it as support for the United States' position. Stay tuned to see whether Judge Rakoff issues a similar ruling against Wells Fargo and Bank of America/Countrywide.