Analysis: Bank of America verdict spotlights U.S. focus on civil cases

Mon Oct 28, 2013 1:02am EDT
 
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By Nate Raymond and Aruna Viswanatha

NEW YORK/WASHINGTON (Reuters) - The U.S. Department of Justice appeared to have struck gold last week with the law it wielded against one of the nation's largest banks over conduct that fueled the financial crisis.

To convince a jury that Bank of America engaged in fraud, lawyers in the Manhattan U.S. Attorney's Office turned to FIRREA, a once-dormant civil fraud statute that essentially allows the government to build a criminal case against financial institutions, but without having to prove it beyond a reasonable doubt.

The Justice Department has tried to use the law in an array of bank cases, especially those tied to the housing bubble and subsequent collapse, after similar criminal investigations did not produce charges.

But Wednesday's verdict, which faulted the bank for making bad home loans and passing them to Fannie Mae and Freddie Mac, was the first test of FIRREA that went all the way through trial. The use of the law could transform the Justice Department's relationship with Wall Street.

"It allows and permits the government to go after all kinds of malfeasance that some people thought that maybe you couldn't go after before," U.S. Attorney Preet Bharara, whose office brought the case against Bank of America, said in an interview on Thursday.

FIRREA, the Financial Institutions Reform, Recovery and Enforcement Act, was passed in 1989 in response to the savings-and-loan crisis but had largely collected dust until Bharara's office resurrected it in 2010.

The Justice Department is now invoking FIRREA in nearly every case it is bringing against financial institutions, from securities fraud to shoddy lending practices to money laundering.

It has used the statute to accuse Standard & Poor's of fraud in rating mortgage bonds, for example, and to go after First Bank of Delaware for allegedly processing withdrawals on behalf of fraudulent merchants.   Continued...

 
A sign for a Bank of America office is pictured in Burbank, California August 19, 2011. REUTERS/Fred Prouser