U.S. prosecutors are showing new resolve in pursuing cases against the financial institutions that sold the shoddy mortgages that led to the global financial crisis of 2007-08.
As part of this new drive, Justice Department lawyers are studying whether they can use section 1079A(b) of the Dodd-Frank Act. The obscure provision extends to six years from five the statute of limitations for criminal prosecutions under certain sections of federal securities laws.
More tantalizing, prosecutors say they may be able to apply the extension retroactively, so that the six-year clock starts ticking for offenses allegedly committed prior to the law’s signing on July 21, 2010.
If Justice acts on that premise, it could reach back to the summer of 2008, when most lenders and Wall Street banks realized the housing jig was up and stopped dealing in toxic loans. But that would work only if indictments could be brought by the summer of 2014.
So what should prosecutors newly intent on bringing bad guys to book do with the six to eight months left on the reset clock? Might they cast a fresh eye on long-closed cases against the senior executives who caused the meltdown?
The answer is yes – probably. I say “yes” because law enforcers and regulatory agencies are responding to public pressure to make up for bad calls and lost time.
One example is the Manhattan U.S. attorney’s successful civil action against Bank of America Corp. and Rebecca Mairone, a Countrywide Financial Corp. mortgage banker. In that case, a federal jury on Oct. 23 found the bank and the banker liable for about $1 billion in losses at Fannie Mae and Freddie Mac, having sold them defective home loans. Until then, no major U.S. bank had been forced to defend its actions during the housing boom in a courtroom.
But I also say “probably” because Dodd-Frank is silent on whether retroactivity is permitted.
If Justice brings such a case, said former SEC lawyer Jacob S. Frenkel, “The legal world would be shocked.” While this doesn’t mean Justice won’t try, doing so would invite controversy. •
Paula Dwyer is a member of the Bloomberg View editorial board.