The Second Circuit recently revived a False Claims Act case that arose out of the 2008 financial crisis.
The case, United States ex rel. Kraus v. Wells Fargo & Co., two employees of banks that were later acquired by Wells Fargo alleged there was a longstanding and significant pattern of fraud in connection with the securitization and sale of substandard mortgages. Upon the collapse of the economy in 2008, Wells Fargo sought assistance from the Federal Reserve Banks (FRBs). The whistleblowers alleged in a False Claims Act lawsuit, now revived, that Wells Fargo lied about its financial condition to those FRBs to be able to obtain billions of dollars in emergency loans at rates that were more favorable than what they would have otherwise been able to receive.
Reviving the case
One of the main issues in the case had been the discussion of whether FRBs, which are semi-private entities set apart from the government, can be considered “officers, employees or agents” of the United States to allow for False Claims Act liability. The district court’s decision was no, but the Second Circuit did not agree.
The Second Circuit noted that congress did go out of its way to separate FRBs from the government, and that FRB personnel should not be considered officers or employees of the federal government. However, the Court did determine that those employees can be considered federal agents, given that the United States originally created those FRBs to act on its behalf, and under its oversight, despite those FRBs having some autonomy. As such, there was a sufficient relationship between the FRBs and the federal government that could allow for False Claims Act cases to proceed.
For more information about False Claims Act cases and how to file one, contact an experienced whistleblower attorney at Kardell Law Group.