Justice Department Brandishes Rarely Used Weapon—FIRREA—in Full-Scale Assault on S&P, and California Joins the Battle with Separate State False Claims Act Complaint

Financial Fraud Law Report
By: Douglas W. Baruch

The Justice Department’s February 4, 2013 lawsuit against credit rating agency Standard & Poor’s Ratings Services ("S&P"), a subsidiary of McGraw-Hill Co., puts an exclamation point on the latest era in civil fraud enforcement. Following close on the heels of several high profile complaints in the Southern District of New York in 2012 in so-called "mortgage fraud" cases, the United States has now fully embraced the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 ("FIRREA")—a 23 year-old statute whose civil penalty provisions had atrophied from nonuse. The Justice Department appears committed to dusting off this powerful weapon and using it either in tandem with the civil False Claims Act ("FCA") or, as in the case of S&P, as the sole basis for extracting huge damages and penalties from companies whose allegedly fraudulent conduct affects federally insured financial institutions.

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