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Latham & Watkins W hite Collar
Defense & Investigations Practice J une 15, 2015 | Number
1845
Expanding FIRREA Liability for Financial Institutions: Recent
Second Circuit Developments
In a brief — and swiftly decided — per cur iam decision issued June 4, 2015, the US Co urt of Appeals for
the Second Circuit affirmed the wire f raud and wire fraud conspiracy conv ictions of three former UBS
Financial Services, Inc. (UBS) traders , finding that their wire fraud off enses triggered a lengthy 10-year
statute of limitations available to prosec utors under the Financial Institutions Reform, Recovery and
Enforcement Act of 1989 (FIRREA). 1 The decision, issued less than a month after oral argument, m arks
the first time in more than a decade th at the Second Circuit has interpreted F IRREA’s controversial
requirement that an offense “aff ect” a financial institution. As importantl y, this case might foreshadow how
the court may interpret the same language with respec t to the application of FIRREA m ore generally.
FIRREA’s Expansive Scope
The traders in United States v. Heinz had been convicted under FIRREA’s lengthier 10-year statut e of
limitations for certain off enses found to “affect[] a financial insti tution.”2 Originall y passed in the wake of
the savings and loan crisis, the po werful statute made sweeping reform s to the financial institution
regulatory and enforcement system , most notably, under Section 1833a of FIRREA, creating harsh new
civil penalties for violations of pr e-existing criminal laws involving or af fecting financial institutions. 3
Specifically, Section 1833a imposes hefty fines — up t o US$1 million per violation or US$5 million for a
continuing violation.4 Prosec utors may also seek penalties f or each discrete violation, enabling th e
government to seek potentially billion dollar aggregate penalties. Although t he underlying offenses are
defined in the criminal code, because Section 1833a imposes civil pena lties, prosecutors need only prove
FIRREA violations by a preponderance of the evidence, instead of the more bur densome “beyond a
reasonable doubt” standard that applies in the criminal context.
The bundling of a civil enforcement regim e with pre-existing criminal statutes has made FIRREA a go-to
mechanism for the Departm ent of Justice (DOJ) when seeking recom pense for alleged financial
wrongdoing over the past four years. Not ably, DOJ has brought FIRREA claim s against the ver y financial
institutions the statute was designed to protect, argu ing that allegedly fraudulent actions c an, in practice,
“affect” the banks themselves. T he use of the statute against the financi al institutions represents a
departure from early FIRREA claims , which were typically brought against c ompanies and individuals who
allegedly defrauded financial instit utions by submitting fraudulent claim s to the institutions. 5
