Members of Sidley’s False Claims Act (FCA) practice have extensive experience in representing financial institutions in investigations and litigations under federal and state FCAs. As a historical matter, government programs that absorb the greatest amount of taxpayer dollars receive the greatest attention from prosecutors and whistleblowers alleging fraud under the FCA. The banking and financial services industries have been no exception. The economic downturn of 2008 prompted an unprecedented flow of government funds to economic recovery programs involving these industries. That influx of government assistance has coincided with a significant increase in government investigations of potential fraud involving these new programs, and a significant increase in whistleblower actions alleging the same.
Defending against FCA allegations in the banking and financial services industries can be particularly challenging because financial institutions often do not submit claims for payment directly to the government. In traditional FCA cases, the submission of such allegedly false claims often serves as the basis for liability. By contrast, FCA cases against financial institutions often are premised on the allegation that the financial institution made material misrepresentations or omitted material facts in certifications filed with government agencies or programs, including certifications of eligibility to participate in government guaranty, insurance, and stimulus programs. The Troubled Asset Relief Program (TARP), the Home Affordable Modification Program (HAMP), and the Veterans Affairs Loan Program (VALP) are just a few examples.
Importantly, even routine certifications, if inaccurate, can serve as the basis of claims for substantial liability under the FCA. Under an amendment to the FCA made in the Fraud Enforcement and Recovery Act of 2009, and the Supreme Court’s 2016 decision in Escobar, prosecutors and whistleblowers allege that such certifications violate the Act so long as they are “material” to a government funding decision, even if the certifying entity did not act with any wrongful intent.
Other recent amendments to the FCA—including those made in the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010—add new incentives and protections for whistleblowers who initiate FCA suits, and are likely to keep both whistleblower and prosecutorial attention focused on potential FCA violations in the banking and financial services industries for years to come.
Against this backdrop, Sidley has advised clients in the financial services industry on a broad range of issues relating to FCA investigations and litigation, including claims relating to mortgage securitization, foreclosure and origination practices, government-purchased securities and other financial instruments, government-backed lending programs, government-issued bonds, taxes, and cost reporting.
Sidley is frequently asked to draw on its deep regulatory, enforcement and litigation experience in this area to assist financial institutions on the full array of potential FCA issues that arise. Our lawyers have extensive familiarity with substantive and procedural aspects of FCA matters in the banking and financial services industries, and we have handled both investigations and, if necessary, litigation. Our results speak for themselves: We have often resolved FCA investigations through favorably negotiated resolutions with government investigators and prospective qui tam relators, by persuading government actors to decline to intervene in pending qui tam cases, and by securing victories on the merits in court.
In addition, we regularly assist clients in developing and enhancing FCA compliance programs, which are designed to establish business practices that meet federal and applicable state FCA requirements and mitigate litigation risk.
Much of our FCA work is highly sensitive and non-public. However, the following list is representative of the types of matters we have handled for our clients in this area:
- Representing an FHA-insured borrower in a Department of Justice investigation relating to purported violations of the National Housing Act’s programmatic requirements.
- Representing a prominent bank in a Department of Justice investigation concerning mortgage origination practices.
- Defending a financial institution in a Department of Justice investigation stemming from a qui tam action alleging fraud in connection with government purchases of mortgage-backed securities.
- Defending a financial institution in a qui tam action relating to a mortgage insurance program.
- Representing a financial institution in connection with a Department of Justice investigation into securitization and foreclosure practices.Defending a prominent bank in a qui tam action concerning guaranteed-lending programs administered by the Department of Veterans Affairs.
- Defending a financial institution in a federal investigation regarding FCA allegations in connection with guaranteed-lending programs administered by the Small Business Administration.
- Representing a major corporation in FCA litigation regarding tax collection on internet sales.
- Represented a brokerage firm in a broad-ranging qui tam action alleging yield burning in connection with municipal bonds.
- Represented a prominent accounting firm in connection with a Department of Justice FCA investigation relating to cost reporting.
- Represented a major corporation in a FCA case regarding the failure to escheat unclaimed property.
When FCA cases proceed to litigation, financial institutions often have numerous defenses at their disposal. Sidley litigators have prevailed on motions to dismiss (on public disclosure, Rule 9(b), and Rule 12(b)(6) grounds, among others) and on motions for summary judgment, defeating qui tam relators’ claims. The following reported cases are representative examples.
- United States ex rel. Hastings v. Wells Fargo Bank, N.A., 2014 U.S. Dist. LEXIS 96864 (C.D. Cal. July 15, 2014) (dismissing all of qui tam relator’s claims as prohibited by the federal FCA’s public disclosure bar).
- United States ex rel. Adams v. Wells Fargo Bank, N.A., 2013 U.S. Dist. LEXIS 175322 (D. Nev. Dec. 11, 2013) (dismissing all of qui tam relator’s claims; holding that statements to Fannie Mae and Freddie Mac are not actionable because neither is a government entity for FCA purposes).