Like a well-stocked medicine cabinet, the United States Code contains statutes Congress originally prescribed to address yesterday’s issues. As new challenges arise, it can be tempting to search the cabinet for older remedies. But care must be taken to ensure that they are not used to address ailments too different from Congress’ original purpose.
Perhaps no better recent example exists than the civil penalties provision of the Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA). Enacted in 1989 in response to the savings and loan crisis—but hardly used in the two decades that followed—FIRREA today serves as the Department of Justice’s (DOJ) remedy of choice to investigate and prosecute cases arising out of the recent financial crisis. The statute’s main ingredients reveal why: a broad scope without the limitations of other statutory schemes (most especially, the federal securities laws), a reduced burden of proof, tough civil penalty provisions, broad investigative authority, incentivizing whistleblower provisions, and a generous 10-year statute of limitations.
FIRREA is an attractive enforcement tool that gives the government great flexibility. Its resurrection, however, may bring unintended consequences for government as a whole.
A close look at FIRREA and the sparse, though significant, case law interpreting it reveals a statutory scheme that DOJ is sure to continue to rely upon as part of any final push to bring headline-grabbing cases arising out of yesterday’s financial crisis. Having glimpsed the unexpected power of this old weapon, DOJ can also be expected to employ FIRREA in other settings. Defining sensible outer limits on FIRREA’s reach is today’s challenge.
The FIRREA Revival, Dredging Up Solutions to the Financial Crisis describes the parameters of FIRREA’s civil penalties provision. The report reviews some of the recent enforcement actions that have been filed using FIRREA and highlights the key holdings that have come out of those cases. Additionally, different trends to watch for as DOJ expands its use of FIRREA are identified.
FIRREA spent two decades at the back of the medicine cabinet. It is now on the countertop with its lid off, and it is being used regularly and aggressively by DOJ to challenge conduct arising from the recent financial crisis. Important questions, however, remain about the statute’s scope and meaning.