On March 6, the U.S. District Court for the Central District of California identified for the first time factors for courts to consider when assessing a civil penalty under the Financial Institutions Reform, Recovery and Enforcement Act of 1989 (FIRREA). United States v. Menendez, No. CV 11-06313, 2013 WL 828926 (C.D. Cal. Mar. 6, 2013). The DOJ sued a real estate broker, alleging he committed bank fraud when he submitted a false certification on behalf of a homeowner to HUD in connection with the homeowner’s short sale. The DOJ claimed the certification was false because it represented that there were no hidden terms or special understandings with the buyer of the property, when in fact the broker himself, through a company he controlled, also was the buyer of the property and intended to immediately resell the property for a profit of nearly $40,000. Drawing upon principles applied by courts in other civil penalty contexts, the court considered eight factors to assess the civil penalty under FIRREA: (i) the good or bad faith of the defendant and the degree of scienter; (ii) the injury to the public and loss to other persons; (iii) the egregiousness of the violation; (iv) the isolated or repeated nature of the violation; (v) the defendant’s financial condition and ability to pay; (vi) the criminal fine that could be levied for the conduct; (vii) the amount of the defendant’s profit from the fraud; and (viii) the penalty range available under FIRREA.

In this case, the court found that Read more…

Last month, in a potentially significant but largely overlooked development, the Department of Justice (“DOJ”) signaled that it would “increasingly” pursue “innovative, non-monetary measures” when it settles civil fraud cases.  In remarks to the American Bar Association on June 7, 2012, Stuart F. Delery, Acting Assistant Attorney General, said it was DOJ’s “view that there will be cases in the future in which obtaining only a monetary recovery will not adequately redress the wrong.”  Responding specifically to the charge that qui tam lawsuits represent merely a “cost of doing business” and that qui tam settlements could be viewed as just another “regulatory burden,” Delery said that DOJ’s civil fraud settlements will increasingly include “non-monetary remedies and other measures to help prospectively reduce fraud.”  By way of example, he cited the Department’s recent health care fraud settlement with Abbott Laboratories, in which the $1.5 billion criminal-civil settlement included such terms as a period of probation; an “agreed statement of facts”; a corporate integrity agreement; and a requirement that the company institute additional compliance measures. Although Delery acknowledged in his remarks that seeking non-monetary relief could “prolong” or even “prevent” settlement discussions, he described it as “increasingly” DOJ’s view “that we owe it to taxpayers to do our best to implement measures to fully explain the conduct that led to the resolution, and to deter future bad acts.”

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