Would You Buy A Subpoena Response From This Man?

Preparing for a FIRREA subpoena.

Preparing for a FIRREA subpoena.

Always pay attention when the Department of Justice becomes enthusiastic about a long-neglected statute.  (The federal False Claims Act was dormant for almost a century).  Here is a sound, short article by Professor Peter J. Henning of Wayne State University Law School on a “new toy” for the Government: U.S. Finds Fresh Use for Seldom-Used Statute in Subprime Cases.  In discussing the Financial Institutions Reform, Recovery, and Enforcement Act (or “FIRREA”), the federal law enacted in response to the savings-and-loan crisis, Professor Henning notes:

Firrea is not just a penalty provision, however, because it also authorizes the Justice Department to pursue civil investigations into potential violations. Rather than just using it as a backstop when evidence might be insufficient to support criminal charges, the subpoenas to G.M. Financial and Santander Consumer indicate that the government is using Firrea as a new means to police the financial markets.

Crimes are typically investigated by a grand jury, which can compel the production of evidence and testimony from witnesses. The civil investigatory power is nearly as broad, with the Justice Department authorized to issue subpoenas to “summon witnesses and require the production of any books” or other evidence from any place in the United States. Unlike a grand jury investigation, in which federal prosecutors generally do not call a subject to testify, a civil inquiry can include requiring someone involved in possible misconduct to appear for questioning. A witness can invoke the Fifth Amendment right against self-incrimination in response to questions, but that can be considered as evidence if a civil case is filed and goes to trial.

Just because the Justice Department issues subpoenas as part of a civil investigation does not necessarily preclude a parallel criminal investigation. Any evidence gathered pursuant to Firrea can be shared with criminal prosecutors, unlike the secrecy rule imposed on any material presented to a grand jury. There is a rule of thumb in white-collar cases that if there is any possibility a case could go criminal, defense counsel should assume that it will and protect the client accordingly. So a Firrea investigation can be fraught with danger.

Indeed.  At a minimum, the receipt of a FIRREA subpoena should be treated just as seriously as the receipt of a grand jury subpoena — and maybe more so.


What They’re Saying About White Collar Wire: “Sage advice . . . to any American citizen.”

Generous comments from Professor Michael Greve at Liberty Law Blog:

You can follow much of the current action [regarding banking and regulation] on WhiteCollarWire, which provides sage advice to bankers and, indeed, any American citizen: “Don’t read us because you’re a criminal. Read us because, some time or other, someone may think you are.” (In addition, the site provides fine literature reviews and martini recipes.)


New DOJ Cases From the Financial Crisis? Look For This Criminal/Civil Hybrid

A good summary by Peter Henning, here —   DOJ Financial Crisis Cases?  — about possible future cases arising from the financial crisis and the Government’s use of a FIRREA provision.  In part:

But pursuing criminal cases from the financial crisis gets increasingly difficult, especially against individuals, because unlike a good bottle of wine, evidence does not age well. Memories dim and the chance of finding the “smoking gun” e-mail or recording that can help implicate a defendant in a fraudulent scheme becomes less likely with the passage of time.

Mr. Holder will more likely pursue charges under a civil statute that has become the Justice Department’s favorite tool of late against banks: 12 U.S.C. 1833a. The statute provides for civil penalties for violations “affecting a financial institution” of up to $5.5 million or the amount the defendant gained from the misconduct.

Congress enacted this provision in 1989 during the savings and loan crisis as part of the Financial Institutions Reform, Recovery and Enforcement Act to give prosecutors another tool to pursue cases involving fraud and other misconduct at banks.

The law is a hybrid: it requires prosecutors to establish that criminal conduct occurred while using the lower civil burden of proof to establish the violation. That makes it easier for the Justice Department to make its case and can even allow a court to make a favorable ruling based solely on written evidence without a trial.

Section 1833a contains other favorable measures for the government. The law extended the statute of limitations for a host of banking crimes to 10 years from the usual 5-year period, so the Justice Department faces little time pressure in pursuing cases involving the mortgage market during the lead up to the financial crisis.

The statute only requires that the violation affect a financial institution, a term that has been broadly construed in recent district court decisions. Last week, Judge Jed S. Rakoff of Federal District Court in Manhattan rejected a challenge by Bank of America to a lawsuit involving the sale of faulty mortgages by its Countrywide Financial subsidiary. He found that the financial institution affected by the fraud could be Bank of America itself, so that even a self-inflicted wound could be the basis for pursuing a civil penalty action.