BofA 'Hustle' appeal tests Justice's novel use of old S&L statute


BofA ‘Hustle’ appeal tests Justice’s novel use of old S&L statute

BofA ‘Hustle’ appeal tests Justice’s novel use of old S&L statute


In successive rulings in 2013, three well-regarded federal judges in Manhattan endorsed the Justice Department’s creative adaptation of an old law from the savings and loan crisis of the 1980s to cases against banks involved in the financial crisis of the 2000s. That April, U.S. District Judge Lewis Kaplan refused to dismiss the government’s civil suit against Bank of New York Mellon. Similar rulings followed in August from U.S. District Judge Jed Rakoff in the so-called “Hustle” case against Bank of America and in September from U.S. District Judge Jesse Furman in a Justice Department civil suit against Wells Fargo.

All three banks had argued that the statute at the heart of the government suits, the Financial Institutions Reform, Recovery, and Enforcement Act of 1989, was intended to protect financial institutions from self-dealing insiders – and not to enable the government to bring suits against the banks themselves. FIRREA permits Justice to bring civil cases against defendants that engage in mail or wire fraud “affecting a federally insured financial institution.” The government said in the BNY Mellon, BofA and Wells Fargo cases that the banks had affected themselves by committing fraud. The banks, as you can imagine, said that was a perverse way to read the statute.

The judges all agreed with the government’s “self-affecting” theory. As Charles Michael of Brune & Richard (and the indispensable S.D.N.Y. Blog) wrote for Columbia’s securities litigation blog, “The upshot is that the government will likely be able to pursue civil charges against federally insured financial institutions (whose misconduct in most cases would affect themselves) for conduct going back 10 years (the limitations period. Conduct leading into or during the financial crisis could be the subject of FIRREA claims for several more years to come.”


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