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How the DOJ is Adapting in the War on Financial Fraud

Matthew P. Previn, Michelle L. Rogers, Benjamin B. Klubes

In the wake of the financial crisis, the United States has continued to pursue major civil enforcement litigation with increasingly aggressive theories of liability against financial institutions. Now, with its sixth lawsuit against a major financial institution in less than two years, the U.S. Attorney’s Office for the Southern District of New York (SDNY) has taken a giant step in its efforts to expand financial institutions’ liability by targeting a seller of conventional loans to the government-sponsored enterprises (GSEs), Fannie Mae and Freddie Mac, with allegations of financial fraud.

Uniquely, the suit combines the force of the Financial Institutions Reform, Recovery and Enforcement Act (FIRREA) — a decades-old statute that was little-used, and practically unheard of, two years ago — with the False Claims Act (FCA), as revised through the Fraud Enforcement Recovery Act of 2009 (FERA), to seek billions in alleged damages and penalties based on the banks’ indirect receipt of government funds.

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