Judge Kaplan today largely denied the Bank of New York’s motion to dismiss a DOJ civil lawsuit alleging that the bank promised its customers “best execution” of foreign exchange transactions but, in fact, maximized its own profit by giving customers the worst (or near worst) prices of the day. A key question of first impression was whether the DOJ could sue a under statute covering frauds that affect a federally-insured institution, when the effects are alleged to be upon the defendant institution itself:
The government sues under the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (“FIRREA”). Section 951 of that statute permits the Attorney General to bring an action for civil penalties against anyone who violates any of a number of criminal statutes, including those prohibiting mail and wire fraud when the fraud is one “affecting a federally insured financial institution.” Although Section 951 has existed for nearly 24 years, it seems not to have been applied much. In fact, this decision marks the first occasion upon which a court has been called to interpret the meaning of the phrase “affecting a federally insured financial institution” under that section. In particular, this case presents the following question of first impression by any court: whether a federally insured financial institution may be held civilly liable under Section 1833a for allegedly engaging in fraudulent conduct “affecting” that same institution. This question currently is presented in two other cases in this district. BNYM contends that it cannot be held liable on such a theory, arguing that the affected institution must be the victim of or an innocent bystander to the alleged fraud, not the perpetrator. The Court disagrees. In passing FIRREA, Congress sought to deter fraudulent conduct that might put federally insured deposits at risk. Where, as alleged here, a federally insured financial institution has engaged in fraudulent activity and harmed itself in the process, it is entirely consistent with the text and purposes of the statute to hold the institution liable for its conduct.