WASHINGTON -- A federal judge in Los Angeles recently made it harder for the government to impose civil money penalties on officers and directors accused of bank fraud.
U.S. District Judge Mariana R. Pfaelzer ruled from the bench Oct. 3 that the government cannot try someone first for bank fraud and then initiate a subsequent proceeding to collect civil money penalties if both prosecutions originate from the same alleged crime, according to attorneys involved.
The judge said going ahead with both proceedings violates the double jeopardy clause of the Constitution, which prevents the government from trying a person twice for the same act.
The judge was expected to release a written version of her decision in U.S. vs. Ferrante on Friday, said Brian C. Lysaght, the attorney representing former Consolidated Savings Bank president Robert A. Ferrante.
The judge declared the civil money penalties under the Financial Institutions Reform, Recovery, and Enforcement Act are part of a criminal, not civil, statute, according to Mr. Lysaght. The judge ruled that the potential penalties were so great under FIRREA -- up to $5 million -- that they rise to the level of criminal punishment. Usually money penalties are civil violations that do not carry double-jeopardy restraints.
Other judges have made similar findings about FIRREA's penalties, said Ronald Glancz, a banking attorney here with Venable, Baetjer, Howard & Civiletti. These judges refused to allow civil money actions against people convicted on bank fraud, he said.
But, none have said that someone acquitted of fraud charges cannot then be tried for civil money penalties, Mr, Lysaght said.
"This is the first time this has been raised any place," Mr. Lysaght said.
Mr. Ferrante found himself in this predicament after the U.S. Attorney's Office in Los Angeles prosecuted him in 1992 for bank fraud charges involving a loan to a fireworks company.
A judge acquitted him of wrongdoing, leading prosecutors to file the civil money penalty in 1993, Mr. Lysaght said.
The ruling could have broader implications beyond this case as jurists often follow decisions made by other trial judges, Mr. Lysaght said.
That means the case could be good news for bankers who have already faced criminal fraud charges and now face civil money penalties, he said.