From Anonymity to Scourge of Wall Street

Firrea is unusually crafted, as it requires a criminal violation like wire fraud or mail fraud to set off the law’s penalties. But because it is a civil statute, it requires a lower burden of proof than criminal charges — finding guilt by a preponderance of the evidence versus beyond a reasonable doubt.

That broad authority has alarmed some defense lawyers, who have argued that the Justice Department has stretched the application of Firrea far beyond its original intent. Bank of America, in a motion to dismiss its case, described the prosecution as having “a wildly expansive reading” of the law.

Other critics question whether the government is overcompensating for the lack of criminal cases against Wall Street. Firrea’s civil actions are a cop-out, the critics say, since not one senior Wall Street executive has been charged criminally for a role in the crisis. The same office that employs Mr. Weidman — the United States attorney’s office in Los Angeles — has come under fire for dropping a criminal investigation of Angelo Mozilo, the former chief executive of Countrywide Financial, one of the biggest mortgage lenders before the financial crisis.

Some investigators at the Securities and Exchange Commission, which file civil cases against big banks, have also raised objections. Federal prosecutors, the S.E.C. officials privately grouse, are encroaching on their turf.

“Realistically, for the Justice Department, the civil cases are a Plan B,” said Stavros Gadinis, a professor at the University of California, Berkeley, law school who focuses on financial regulation.

The federal government’s deployment of the little-used law has inspired comparisons to Eliot Spitzer’s novel use of the Martin Act as a cudgel against fraud. As New York’s attorney general, Mr. Spitzer harnessed the powerful 1921 state law to pursue suspected wrongdoing at large Wall Street firms like Merrill Lynch.

Firrea carries similar potency. In addition to the lower burden of proof, it allows prosecutors to bring cases that take aim at misconduct as far back as 10 years — a generous statute of limitations compared with five years for criminal securities fraud. And in pursuing a Firrea lawsuit, prosecutors are allowed not only to issue subpoenas, but also to take the sworn testimony of individuals.

It also provides for hefty fines. The Justice Department used the law to sue S.& P. for more than $5 billion, accusing it of knowingly issuing misleading ratings on mortgage-backed securities. JPMorgan’s tentative $13 billion settlement over its sale of shoddy mortgage securities would be a record — a single company has never before paid that much to the government.

Defense lawyers say that Firrea gives the government a game-changing weapon in pursuing civil cases against banks.

“In retrospect, it’s surprising that prosecutors have waited so long to happen upon such a powerful statute,” said Susan E. Brune, a former federal prosecutor and now a partner at Brune & Richard.