As part of its crusade against bank fraud, the U.S. Attorney's Office in Manhattan in relying on a once-obscure federal statute called the Financial Institautional Reform, Recovery, and Enforcement Act (FIRREA). Interestingly, FIRREA's potency will depend on whether judges give a broad reading to a single word in its text—namely, "affect." Fortunately for prosecutors, on Monday a second federal judge adopted their definition of the verb in a case involving Bank of America Corporation's Countrywide Financial unit.
In a 24-page decision, U.S. District Judge Jed Rakoff in Manhattan explained why he's so far refused to dismiss allegations by prosecutors that Countrywide violated FIRREA by selling defective mortgages to Fannie Mae and Freddie Mac. Rakoff's ruling hinges on his interpretation of a provision of the statute stating that it only applies to conduct that "affects" a federally insured financial institution. Rejecting arguments by BofA's defense lawyers, Rakoff ruled that the affected institution can be BofA itself.
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