The Financial Institutions, Reform, Recovery and Enforcement Act (“FIRREA”) was enacted as a result of the savings and loans crisis in the 1980s. The act contains a provision that allows the U.S. Department of Justice to pursue claims civilly (as opposed to criminally) against wrongdoers who commit certain specified crimes that affect federally insured financial institutions. The specified crimes include mail fraud, wire fraud, and bank fraud, among others. Whistleblowers can submit claims under FIRREA under a complementary whistleblower statute, the Financial Institutions Anti-Fraud Enforcement Act (“FIAFEA”).
FIRREA has proven to be a powerful tool in the fight against fraud, yielding record-breaking recoveries. One of the powerful features of the statute is that it lowers the government’s burden of proof from the criminal standard of “beyond a reasonable doubt” to the civil standard of “preponderance of the evidence.” This means that the government must only prove that it is more likely than not that a defendant engaged in the misconduct. Another powerful feature is the penalty provision, which allows the government to penalize the wrongdoer up to the amount of the loss caused by the misconduct.
Using this statute, the DOJ levied billions of dollars in penalties on Wall Street banks following the financial crisis for their fraudulent misrepresentations made in selling faulty mortgaged-backed securities. This firm’s Richard Elias was the lead investigator who investigated JP Morgan under FIRREA, leading to a $13 billion settlement.
FIRREA whistleblowers bring their claims by filing a confidential declaration with the DOJ. If the government recovers based on the original information brought by the whistleblower, the whistleblower is entitled to recover 20 percent to 30 percent of the first $1 million recovered, 10 percent to 20 percent of the next $4 million recovered, and 5 percent to 10 percent of the next $5 million, up to a maximum award of $1.6 million. This firm recently obtained the largest reported FIRREA whistleblower recovery for one of its clients.
Read the full text of the FIRREA civil penalties provisions (18 U.S.C. § 1833a) and the FIAFEA whistleblower provisions (12 U.S.C. §§ 4201-4213).