Millions Paid To Resolve FIRREA Allegations Related To False Statements To Lender
On January 6, 2021 the Department of Justice announced that Vivint Smart Home Inc. (Vivint) agreed to pay $3.2 million to resolve allegations of making false statements to a federally insured bank. Vivint had been charged under the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA).
According to the DOJ allegations, Vivint, a home security company based in Provo, Utah, made the offending false statements from 2017-2020. Specifically, Vivint's door-to-door sales representatives used their own personal funds to cover initial payments for customers seeking financing to purchase Vivint's products. In doing so, Vivint made false and misleading statements to a federally insured financial institution providing financing by indicating that the customers had funded, and had sufficient funds for, the initial payment.
These acts allegedly violated FIRREA. FIRREA, a useful tool to prosecutors, provides for civil causes of action based on criminal conduct, such as bank or wire fraud. Among other things, FIRREA allows the government to collect financial penalties without having to meet the heavy burden of proof beyond a reasonable doubt required for a criminal conviction. Monetary penalties under FIRREA range from $1.1 million per day or $5 million per continuing violation.
Since the 2008 housing crisis, FIRREA has often been invoked in relation to mortgages and mortgage-backed securities. The application here, charging misrepresentations to banks, fuels industry expectations that FIRREA may be used in connection with Paycheck Protection Program (PPP) fraud.
After an investigation of an undisclosed length of time, Vivint agreed to settle for $3.2 million without any admission or determination of liability—far less than could have been imposed if FIRREA liability had been established.
This case provides another example of the government's efforts to hold a corporation to account for the actions of its employees in the absence of criminal prosecution.
© Arnold & Porter Kaye Scholer LLP 2021 All Rights Reserved. This blog post is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.