Legislation Aims to Expand Liability Under the Civil False Claims Act and Criminal Laws to Entities Receiving TARP Funds

Thursday, April 30, 2009

Please join us for the next teleconference in our continuing credit crisis series, in which we will address current issues involving implementation of the Emergency Economic Stabilization Act and other steps taken by the US Treasury, Federal Deposit Insurance Corporation and the Federal Reserve to stabilize financial institutions and improve liquidity in the credit markets.

We will be discussing the implications of pending federal legislation that is expected to be enacted rapidly in order to create new anti-fraud authorities and provide resources in connection with these programs. Among other things, we will be discussing:

  • Legislation to amend the civil False Claims Act, the government's most potent anti-fraud weapon. This treble damages statute, which has been little known to the financial services industry, but is a favorite tool of prosecutors and private qui tam relators (also known as whistleblowers) to pursue fraud in federal programs, will be amended to apply to:

    • Any demand for money that is used on the government's behalf or to advance a government program - this amendment could potentially expose any entity benefiting from TARP funds in any way to qui tam actions.

    • Any failure to repay an obligation or any efforts to reduce payment with respect to an obligation (including any regulatory duty or contingent duty) owed to the government, or retention of any overpayment (a dramatic expansion of the definition of reverse false claim).

  • Legislation to extend the provisions of the criminal laws to state-licensed mortgage lending companies that have been historically responsible for originating nearly 50% of the residential mortgage loans.

    • Among other things, this legislation specifically criminalizes the making of a false statement on a mortgage application or as part of the appraisal process.

  • Legislation that will extend the provisions of the Major Fraud Act (which provides for enhanced criminal penalties up to $5 million) to TARP funds, including the purchase of preferred stock in financial institutions.

Listen to the audio recording >>

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