The Financial Institutions Anti-Fraud Enforcement Act of 1990 (“FIAFEA”) provides substantial rewards to confidential whistleblowers who expose fraud in the banking industry, a sector of the economy where the potential for large-scale fraud is ever-present.
Congress enacted FIAFEA a year after the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (“FIRREA”) in order to incentivize individuals to come forward with valuable information relating to FIRREA violations. FIRREA was enacted in the wake of the savings and loan crises of the 1980s. The law gives the U.S. Attorney General the power to bring civil actions seeking statutory penalties for violations of various criminal laws that apply to the banking industry. The statute carries a lengthy 10-year statute of limitation and a lower standard of proof – preponderance of the evidence – than seen in criminal proceedings; both attributes making it a powerful anti-fraud tool for the Attorney General.
The Attorney General can bring a civil action under FIRREA for several criminal violations, including:
- Anti-money laundering violations;
- Bad loan underwriting/servicing violations;
- Mail fraud;
- Wire fraud;
- Making false statements or false entries in books and records;
- Receiving commissions or gifts in exchange for procuring loans;
- Embezzlement or misapplication of funds by a bank officer or employee;
- Use of false statements with respect to loan applications;
- Defrauding or attempting to defraud a bank;
- False statements and overvaluing of securities;
- Presenting a false claim to the government; and
- Concealment of assets from a government conservator, receiver or liquidator of a bank.
These categories are so broadly defined that almost any fraud on a bank by its customers, or any fraud by a bank’s own employees, officers or directors, may come within the scope of a FIRREA civil penalties provision.
Under FIAFEA, a whistleblower files a declaration under oath with the Attorney General describing the facts and circumstances of the bank fraud. The declaration is similar to the “disclosure statement” typically filed with the Department of Justice (“DOJ”) in qui tam cases brought under the False Claims Act and can include attached documents and witness information to support the claims.
As with other whistleblower causes of action, the declarant here must be the original source of the information. The declaration is sealed and confidential during the government’s investigation and in some cases a lengthier period of time. If the declaration gives rise to FIRREA liability and the government obtains a recovery as a result, then the whistleblower is in line for an award.
FIAFEA’s whistleblower awards can be quite large — up to $1.6 million if the government recovers more than $10 million. FIAFEA’s award provision provides that
[t]he declarant shall be entitled to 20 percent to 30 percent of any recovery up to the first $1,000,000 recovered, 10 percent to 20 percent of the next $4,000,000 recovered, and 5 percent to 10 percent of the next $5,000,000 recovered.
So if the government recovers $10 million or more, then the whistleblower award would range from a low of $850,000 to a high of $1.6 million.
FIAFEA also contains a unique provision relating to the whistleblower attorney’s role. Within one year of the whistleblower’s declaration filing date, DOJ must provide a written notice of the investigation’s status. If DOJ indicates that the whistleblower’s allegations have not yet been addressed, then the whistleblower can request that DOJ award a contract to the whistleblower’s own attorney to pursue the case. DOJ must then either award such a contract, or bring a claim on its own based upon the whistleblower’s allegations.
If DOJ chooses to award a contract to the whistleblower’s attorney, then FIAFEA provides that it should be a contingency fee contract. In other words, the whistleblower’s attorney is given a stake in the outcome of the litigation separate and apart from the reward available to the whistleblower. In this way, the whistleblower and his or her counsel become a sort of deputy U.S. Attorney to prosecute the fraud.
In sum, FIAFEA provides strong financial incentives for whistleblowers to come forward with evidence of fraud in the banking industry, and separate financial incentives for attorneys to represent these whistleblowers.
Contact us for a free confidential case evaluation if you believe you have information that could result in a FIAFEA claim.