As part of its crusade against bank fraud, the U.S. Attorney's Office in Manhattan in relying on a once-obscure federal statute called the Financial Institutional Reform, Recovery, and Enforcement Act (FIRREA). Interestingly, FIRREA's potency will depend on whether judges give a broad reading to a single word in its text — namely, "affect." Fortunately for prosecutors, on Monday a second federal judge adopted their definition of the verb in a case involving Bank of America Corporation's Countrywide Financial unit.

In a 24-page decision [PDF], U.S. District Judge Jed Rakoff in Manhattan explained why he's so far refused to dismiss allegations by prosecutors that Countrywide violated FIRREA by selling defective mortgages to Fannie Mae and Freddie Mac. Rakoff's ruling hinges on his interpretation of a provision of the statute stating that it only applies to conduct that "affects" a federally insured financial institution. Rejecting arguments by BofA's defense lawyers, Rakoff ruled that the affected institution can be BofA itself.

Rakoff's reading of FIRREA — which has been dubbed the "self-affecting" theory — puts him in line with fellow Southern District of New York judge Lewis Kaplan. Kaplan staked out the same position back in April, when he refused to dismiss a FIRREA case federal prosecutors in New York brought against Bank of New York Mellon Corp. over its foreign currency conversation practices.

FIRREA, enacted by Congress in the wake of the savings and loan crisis of the late 1980s, allows the government to bring civil charges for violations of criminal statutes like mail fraud and wire fraud. Because it's a civil statute, it comes with a lower standard for proof and a generous statute of limitations. Arguably the most meaningful limitation on its scope is the textual requirement that it only governs conduct "affecting a federally insured financial institution," like an FDIC-insured bank or thrift. The U.S. Attorney in Manhattan, Preet Bharara, has employed the statute — as well as the "self-affecting" theory of liability — in separate civil suits against BofA, BNY Mellon, and Wells Fargo & Co.

The Countrywide case involves allegations that the lender accelerated its loan origination process through a program known as the High Speed Swim Lane (a.k.a. "the hustle"), and then lied to Fannie and Freddie about the health of the mortgages produced by the program. The Justice Department argues that because Bank of America is itself a FDIC-insured bank, its own alleged misconduct "affected" a federally insured financial institution for purposes of FIRREA.

BofA's defense lawyers moved to dismiss in December 2012. "This Complaint seeks to extend FIRREA to unprecedented lengths. It employs a law designed to protect federally insured financial institutions to assert a claim against such institutions," Williams & Connolly and Goodwin Procter, which represent BofA and Countrywide respectively, argued in their brief.

After thumbing through Webster's Dictionary, Rakoff swiftly rejected the defense arguments in Monday's opinion. "Affect" simply means "to have an effect on," he wrote. BofA has already paid out billions to settle repurchase claims by Fannie and Freddie, he noted, so there's no question that the alleged fraud had a "huge effect on BofA itself (not to mention its shareholders)."

"The defendants' endlessly complicated argument that this is somehow not an effect that Congress intended to encompass within the broad phrase 'affecting a federally insured financial institution' rests not on the plain meaning of [FIRREA], but rather on such things as extended inferences from the omission of the 'affecting' limitation from the neighboring subparagraphs of FIRREA, speculation drawn from the neighboring snippets of legislative history, and the like," Rakoff added.

BofA's defense lineup at Williams & Connolly includes Enu Mainigi and Brendan Sullivan Jr. A Goodwin Procter team including Richard Strassberg and William Harrington represents Countrywide. Lawyers from Bracewell & Giuliani led by Marc Mukasey are defending Rebecca Mairone, a former Countrywide exec named as an individual defendant.

This article originally appeared in The Am Law Litigation Daily.