BREAKINGVIEWS-Wall Street enforcers stretch law to hide sloth
(The author is a Reuters Breakingviews columnist. The opinions expressed are his own.)
By Reynolds Holding
NEW YORK, Aug 21 (Reuters Breakingviews) - Wall Street's enforcers are stretching the law to hide their own sloth. U.S. Attorney General Eric Holder is already late with plans to crack down. His prosecutors are trying to buy time by suing Bank of America (BAC.N) and other financial firms under a statute meant to protect the companies from fraud. But that creates legal uncertainty. If the watchdogs were serious about avenging the 2008 economic meltdown, they could have pounced sooner.
Holder's claim that financial fraud cases are still in the offing comes just a day after prosecutors received written permission to turn an old law on its head. The 1989 Financial Institutions Reform, Recovery and Enforcement Act (FIRREA) was enacted after the U.S. savings and loan debacle to punish misdeeds against the financial companies concerned. Despite its low burden of proof, harsh civil penalties and long 10-year statute of limitations, the law went largely unused, except against the occasional executive of a failed bank.
Last year, however, it attracted renewed interest from federal prosecutors facing five-year filing deadlines for financial crisis cases. Though FIRREA was aimed at misconduct that "affected" institutions, the attorneys argued that BofA and others violated it themselves by attracting costly litigation with alleged lies about housing loans. The victim, in essence, was also the offender.
Jed Rakoff approved this novel claim in a U.S. court opinion on Monday, becoming the latest judge to stretch a statute beyond its original purpose. The racketeering law known as RICO, enacted to tackle organized crime, now covers a variety of mundane schemes. The definition of mail and wire fraud, meanwhile, expanded to include almost any suspicious behavior until the Supreme Court imposed limits in 2010.
A broad-brush approach can seem sensible when it frees prosecutors to pursue, say, banks that stuck unsuspecting investors with toxic assets. But it risks punishing behavior never meant to be illegal. The Rakoff ruling arguably makes banks liable under FIRREA for defending even meritless litigation that "affects" them with its high cost.
Federal prosecutors could have pursued banks – and perhaps imprisoned executives – before five-year statutes of limitation on other laws expired. They concentrated instead on insider trading and other offenses. Relying now on FIRREA's 10-year deadline leaves financial firms even more uncertain about their legal liability. Banks don't deserve much sympathy, but they shouldn't have to pay extra for Holder's dawdling.
SIGN UP FOR BREAKINGVIEWS EMAIL ALERTS: www.breakingviews.com/TOPNewsSubscription
- U.S. Attorney General Eric Holder on Aug. 20 told the Wall Street Journal that the Justice Department is finishing investigations of large financial firms and plans to file within months new cases involving the 2008 economic meltdown.
- Though the typical five-year deadlines for such cases are expiring, federal prosecutors are beginning to rely on the 10-year statute of limitations under the Financial Institutions Reform, Recovery and Enforcement Act (FIRREA), a 1989 law enacted to protect banks from wrongdoing by others.
- On Aug. 19, U.S. District Judge Jed Rakoff issued an opinion that allows the Justice Department to sue Bank of America for alleged mortgage fraud under FIRREA. The judge said the statute's prohibition on fraud that "affected" a financial institution could include a bank's own misconduct. In March, another federal judge ruled that the Bank of New York (BK.N) could also be sued under FIRREA for its own alleged wrongdoing.
- In addition to having an unusually long statute of limitations, FIRREA requires a lower standard of proof for showing violations of otherwise criminal statutes and provides for high penalties of up to $1.1 million per violation or $5.5 million for a continuing violation.
- Rakoff opinion: link.reuters.com/wam52v
Justice Department planning new action against financial firms: report [ID:nL4N0GM254]
Judge endorses U.S. use of fraud law against Bank of America [ID:nL2N0GD14U]
Pencils down [ID:nL2N0GH0XN]
Double jeopardy [ID:nL1E8M137U]
- For previous columns by the author, Reuters customers can click on [HOLDING/]
(Editing by Richard Beales and Martin Langfield)
((email@example.com)(Reuters messaging firstname.lastname@example.org)) Keywords: BREAKINGVIEWS FINANCE/LAWSUITS
(C) Reuters 2012. All rights reserved. Republication or redistribution of Reuters content, including by caching, framing, or similar means, is expressly prohibited without the prior written consent of Reuters. Reuters and the Reuters sphere logo are registered trademarks and trademarks of the Reuters group of companies around the world.
- Tweet this
- Share this
- Digg this
- Alabama man claims penis was amputated by mistake
- UPDATE 4-Liberian man in Lagos being tested for Ebola
- 'Weird Al' Yankovic still trying to wrap head around No. 1 album
- Asian economies to struggle on weak export demand - Reuters poll
- UPDATE 2-U.S. says Russia firing artillery over border at Ukraine military