Few can ignite a legal firestorm like U.S. District Judge Jed Rakoff of the Southern District of New York. Last week, in a mortgage fraud suit against Bank of America and Countrywide, Judge Rakoff refused to dismiss a novel claim for civil penalties under the obscure Financial Institutions Reform Recovery Enforcement Act (“FIRREA”). The ruling will surely encourage civil prosecutors to make wider use of FIRREA, which provides a generous ten-year statute of limitations and low burden of proof, in pursuing financial fraud cases.
FIRREA was enacted in response to the Savings and Loan debacle of the 1980s, as well as the fraud scandals that emerged during that era. The statute includes a clause imposing a civil penalty for mail and wire fraud and other violations “affecting a federally insured financial institution.” Until recently the civil penalty provision has been ignored by prosecutors, leaving courts without occasion to decide what exactly the statute means by “affecting” a financial institution. READ MORE →
In the latest development in an SEC lawsuit filed Friday, February 15, U.S. District Judge Rakoff extended a freeze on a Swiss Goldman Sachs account linked to possible insider trading in H.J. Heinz Company call options. The complaint alleges that these options were bought for $90,000 the day before the ketchup maker agreed to be bought by Warren Buffett’s Berkshire Hathaway, Inc. and Brazilian investment firm 3G Capital, giving the mystery investors $1.7 million in profits. The SEC said that the timing and size of the trades were suspicious because the account had had no history of trading Heinz stock over the last six months.
On Friday, February 15, Rakoff approved an emergency court order to freeze the assets in a Swiss trading account, which would prevent the investors from taking the profits out of the account until they showed up in court to “unfreeze” them. At a hearing the following week, none of the investors showed up. Rakoff relished: “They can hide, but their assets can’t run.” READ MORE →