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NYC FDIC Fraud Lawyers

1929 closed out a decade of unprecedented joy in the United States. Spirits were high and the music was loud, but October 24 of the same year – known as “Black Tuesday” – brought with it the downfall of America’s entire financial and banking institutions. The stock market crashed, the value of the dollar disintegrated, and banks began to close their doors.

In response, President Franklin D. Roosevelt and Congress created the Federal Deposit Insurance Corporation (FDIC) as a way to protect banks from a similar catastrophe. Though the move didn’t completely turn the tide of the Great Depression, it helped usher in a new society where consumer finances were better protected.

What Is the FDIC?

At its core, the FDIC is an insurance program itself that protects customer monies that are deposited into banks. As of 2008, the FDIC insures an account against bank failure up to $250,000; since the FDIC insures six different account types by law, that means a single person can be theoretically protected up to $1.5 million if they take advantage of all six accounts.

In addition, the FDIC also protects institutions against interbank loan failures. According to the Temporary Liquidity Guarantee Program, a bank can access funds from another bank to pay out loans and repay deposits even if their bank is not exactly liquid at the time. Furthermore, the FDIC also acts as an overseer of banking operations. Because each bank is required to act in accordance with a strict set of financial regulations, whenever the FDIC feels they are acted contrary to the bylaws, a regulator can step in to fix the problems. The FDIC is granted wide-ranging powers to act in the best interest of the financial community as a whole.

Paperwork is key to staying in compliance with the FDIC. Banks are required to keep detailed records of all their transactions and holdings and submit them regularly for examination. Any irregularities within the paperwork can trigger an audit with the FDIC, who will send in their investigators to resolve the issue at hand and make sure they are fulfilling their obligations to their customers.

How Can Fraud Occur?

Just like other institutions, there will always be people who will try to game the system, and since there is so much paperwork involved in the banking industry, criminals are always looking for loopholes to exploit. Moreover, whenever a person commits fraud against a bank or the FDIC, there is normally another federal-level crime, which means the FBI or U.S. Department of Justice can get involved. Because of this, fraud can occur in a number of different ways.

1. Tanking the Bank – If a banking authority or someone who is in possession of some level of authority acts in such a way that the bank becomes insolvent, that is regarded as FDIC fraud. Even if the money isn’t outright stolen, it is still considered negligent and lost due to the intentional actions of the perpetrator.

2. Fake Loans – In some cases, bank employees will fabricate loans out of thin air that they will make them eligible to receive federal funding. While they may create completely fake loans, they may also fake documents that will allow them to receive federal funds for loans they are not authorized to handle. Both of these result in fraud.

3. Manipulated Info – Because the FDIC relies so heavily on documentation to navigate a bank’s condition, any information that is fabricated or manipulated to inflate (or deflate) their true situation is illegal. By the same token, any erroneous information that is intentionally fed to the banking staff or executives is considered fraud as well. Records are sacred to the banking community, and the FDIC takes errors very seriously, so unless the mistake was in good faith, expect a severe reprimand.

4. False Claims – If a bank or its executives make false insurance claims to the FDIC for the purpose of receiving federally-funded payments, that is also fraud. The goal is to keep scammers from obtaining money that they are not entitled to.

5. False Representation – The only way that a bank can publicize that they are aligned with the FDIC is if they are actually insured by the FDIC. False claims of a government alliance mislead the public and can prove to be costly.

The lessons learned from the Stock Market Crash of 1929 and the subsequent Great Depression are ingrained in the psyche of the American public and are not soon to be forgotten by anyone, especially those in the financial sector. That’s why if you’ve been charged with a crime, especially that of fraud against the FDIC, it’s important to seek experienced counsel as soon as possible to minimize the effects.

by Leonard on Spodek Law Group
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