False Claims Act: Eastern District Of New York Dismisses Case Alleging Fraud Against Federal Reserve Banks

The U.S. District Court for the Eastern District of New York decided a long-running whistleblower case last month, which alleged that Wells Fargo and its predecessors-in-interest had defrauded Federal Reserve Banks (FRBs) in order to borrow money at lower interest rates. In United States v. Wells Fargo & Co., No 1:11-cv-05457 (E.D.N.Y. May 9, 2018), the Court ultimately dismissed the False Claims Act (FCA) case, which had been remanded from the Second Circuit in September 2017.

The relators, former employees of Wachovia Bank and World Savings Bank, both of which merged into Wells Fargo in 2008, argued that the FRBs were government agencies for purposes of their FCA case. In addressing this issue, the Court looked to two Supreme Court decisions, Rainwater v. United States and United States v. McNinch, for a non-exclusive list of factors to consider.

Relators relied on provisions of the Federal Reserve Act that create a financial connection between FRBs and the U.S. government. For example, Section 289 states that surplus funds are to be transferred to the Federal Reserve Board and then deposited into the U.S. Department of Treasury's (Treasury) general fund...

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