On November 20th, the Department of Justice announced that it had recovered approximately $5.7 billion in fiscal year 2014 through litigation and settlements under the False Claims Act. Somewhat surprisingly, the financial sector, accounting for $3.1 billion of that total, outpaced all other industries, including such historical FCA stalwarts as the health care and government contracting sectors.
The total financial sector recovery was significantly bolstered by several high-profile settlements, including a $1.9 billion settlement with Bank of America relating to alleged misconduct with the origination and sale of mortgages and $615 million from JPMorgan & Chase Co. as part of a global settlement of fraud claims against it. Those settlements represent the termination of financial crisis-related claims against those financial institutions, and other banks are reportedly also in the process of discussing global settlements of FCA claims with the Justice Department.
With the prospective resolution of FCA claims relating to the housing bubble and 2008 financial crisis, financial institutions cannot rest easy or become complacent. Although the size of individual recoveries may go down, the government will likely continue utilizing the FCA as a powerful tool in its ongoing effort to prosecute financial institutions that engage in fraudulent behavior. Whether through government-initiated litigation or qui tam actions brought by whistleblowers (the Justice Department revealed that whistleblowers filed more than 700 qui tam actions in fiscal year 2014), the FCA is a powerful and cost-effective vehicle.
And with ongoing government efforts to encourage whistleblowing, combined with potentially significant financial rewards to whistleblowers, there is no reason to believe government scrutiny will diminish. Especially in light of public comments from Attorney General Eric Holder calling for more whistleblower activity in the financial services sector. Banks should exercise diligence and seriously investigate information suggesting potential impropriety.