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FIRREA: Everything Old Is New Again
In the aftermath of the savings and loan crisis of the 1980s, Congress passed a number of financial reforms, including the Financial Institutions Reform, Recovery and Enforcement Act of 1989 (FIRREA). Its purpose was to provide federal enforcement authorities with a powerful mechanism to pursue borrowers, bank officers and others whose fraudulent action “affected a federally insured financial institution.” In one high-profile prosecution, Charles Keating, the owner and chief executive of a federally insured thrift, Lincoln Savings and Loan Association (Lincoln), was charged in a multi-count indictment with myriad violations of federal law, including FIRREA. This prosecution ' with its focus on borrowers, appraisers and bank executives whose conduct harmed federally insured institutions ' was the norm for FIRREA cases for two decades.
Recent years have seen significant refocus of the FIRREA statute. Largely in response to the financial crisis of 2008, the government has brought claims against at least 2,900 individual defendants facing charges of mortgage fraud. While many cases involve causes of action based on the False Claims Act, 31 U.S.C. ' 3730, the government is also pursuing many of these defendants under FIRREA. 12 U.S.C. ' 1833. The language of FIRREA requiring that conduct “affect” a financial institution remains unchanged since the 1990s. The Department of Justice (DOJ) is relying on this language to address the risky lending practices of the financial institutions themselves as a basis for FIRREA claims. In other words, the focus 20 years ago was on protecting financial institutions from individuals, but FIRREA has now become an important instrument to address financial institutions' own improper lending or other business practices.
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