Court Opinion

ID: 4457777
Source: CourtListenerOpinion
Date Created: 2019-11-21 16:00:13.580539+00
Date Added: 2024-06-11T14:51:20.458006
License: Public Domain

18‐1746
     United States v. Wells Fargo

                   United States Court of Appeals
                                    for the Second Circuit
                                        _______________

                                       AUGUST TERM, 2018

           (Argued: April 4, 2019               Decided: November 21, 2019)

                                       Docket No. 18‐1746
                                        _______________

     UNITED STATES OF AMERICA EX REL. ROBERT KRAUS AND PAUL BISHOP,
                          Plaintiffs‐Appellants,

    STATE OF NEW YORK, EX REL. PAUL BISHOP, EX REL ROBERT KRAUS, STATE OF
 DELAWARE, EX REL PAUL BISHOP, EX REL ROBERT KRAUS, DISTRICT OF COLUMBIA,
   EX REL PAUL BISHOP, EX REL ROBERT KRAUS, STATE OF FLORIDA, EX REL PAUL
  BISHOP, EX REL ROBERT KRAUS, STATE OF HAWAII, EX REL PAUL BISHOP, EX REL
    ROBERT KRAUS, STATE OF CALIFORNIA, EX REL PAUL BISHOP, EX REL ROBERT
KRAUS, STATE OF INDIANA, EX REL PAUL BISHOP, EX REL ROBERT KRAUS, STATE OF
 ILLINOIS, EX REL PAUL BISHOP, EX REL ROBERT KRAUS, STATE OF MINNESOTA, EX
REL PAUL BISHOP, EX REL ROBERT KRAUS, STATE OF NEVADA, EX REL PAUL BISHOP,
 EX REL ROBERT KRAUS, STATE OF NEW HAMPSHIRE, EX REL PAUL BISHOP, EX REL
 ROBERT KRAUS, COMMONWEALTH OF MASSACHUSETTS, EX REL PAUL BISHOP, EX
 REL ROBERT KRAUS, STATE OF NEW MEXICO, EX REL PAUL BISHOP, EX REL ROBERT
 KRAUS, STATE OF MONTANA, EX REL PAUL BISHOP, EX REL ROBERT KRAUS, STATE
OF NORTH CAROLINA, EX REL PAUL BISHOP, EX REL ROBERT KRAUS, STATE OF NEW
JERSEY, EX REL PAUL BISHOP, EX REL ROBERT KRAUS, STATE OF OKLAHOMA, EX REL
   PAUL BISHOP, EX REL ROBERT KRAUS, STATE OF RHODE ISLAND, EX REL PAUL
BISHOP, EX REL ROBERT KRAUS, STATE OF TENNESSEE, EX REL PAUL BISHOP, EX REL
   ROBERT KRAUS, COMMONWEALTH OF VIRGINIA, EX REL PAUL BISHOP, EX REL
                                ROBERT KRAUS,
                                   Plaintiffs,
                                      —v.—

              WELLS FARGO & COMPANY, WELLS FARGO BANK, N.A.,
                            Defendants‐Appellees.
                             _______________

      Before: KATZMANN, Chief Judge, CABRANES AND CARNEY, Circuit Judges.

                                _______________

        Paul Bishop and Robert Kraus appeal from a judgment of the United States
District Court for the Eastern District of New York (Cogan, J.) granting the
motion to dismiss of Wells Fargo & Company and Wells Fargo Bank, N.A.
Bishop and Kraus argue that the district court erred in concluding that
fraudulent loan requests knowingly presented to one or more of the Federal
Reserve System’s twelve Federal Reserve Banks (“FRBs”) are not “claims” within
the meaning of the False Claims Act (“FCA”), and hence do not give rise to FCA
liability. We agree in an opinion narrowly focused on the FCA. The FCA’s
definition of a “claim” is capacious. Although FRB personnel are not “officer[s]”
or “employee[s] . . . of the United States,” 31 U.S.C. § 3729(b)(2)(A)(i), the FRBs
administer the Federal Reserve System’s emergency lending facilities on behalf
of the United States, using authority delegated by Congress and money provided
by the Board of Governors of the Federal Reserve System. We conclude,
therefore, that the FRBs are “agent[s] of the United States” within the meaning of
§ 3729(b)(2)(A)(i). We also conclude that the “money . . . requested” by
defendants and other Fed borrowers is “provided” by the United States to
advance a Government program or interest within the meaning of §
3729(b)(2)(A)(ii). Accordingly, we VACATE the judgment of the district court
and REMAND the case for further proceedings.

                                _______________

            JAY W. EISENHOFER (James J. Sabella, Sharad A. Samy, Kyle J. McGee,
                 Proskauer Rose LLP, New York, New York, and Tejinder
                 Singh, Goldstein & Russell, P.C., Bethesda, Maryland, on the

                                         2
                   brief), Proskauer Rose LLP, New York, New York, for Plaintiffs‐
                   Appellants.

            AMY PRITCHARD WILLIAMS (Stephen G. Rinehart, on the brief),
                 Troutman Sanders LLP, Charlotte, North Carolina, for
                 Defendants‐Appellees.

            Joseph H. Hunt, Assistant Attorney General, Richard P. Donoghue,
                  United States Attorney for the Eastern District of New York,
                  Charles W. Scarborough, Joshua M. Salzman, for the United
                  States, Amici Curiae.

            Richard M. Ashton, Joshua P. Chadwick, Yvonne F. Mizusawa,
                  Katherine A. Pomeroy, for Amici Curiae Board of Governors of
                  the Federal Reserve System.

            Meghann E. Donahue, Michele Kalstein, for Amici Curiae Federal
                Reserve Bank of New York.

            Keith Goodwin, Gregory J. Ewald, for Amici Curiae Federal Reserve
                  Bank of Richmond.

                                _______________

      KATZMANN, Chief Judge:

      This case arises out of the 2008 financial crisis. This appeal—appellants’

second—asks us to decide whether the False Claims Act (the “Act” or the

“FCA”), 31 U.S.C. § 3729 et seq., applies to persons who defraud the emergency

lending facilities of the Federal Reserve System (the “Fed”).

                                         3
      Paul Bishop and Robert Kraus (“relators”) allege that Wells Fargo &

Company and Wells Fargo Bank N.A. (jointly, “Wells Fargo”) fraudulently

misrepresented their financial condition to one or more of the Fed’s twelve

regional Federal Reserve Banks (“FRBs”) so that they could obtain emergency

loans at favorable interest rates for which they were not qualified. The district

court (Cogan, J.) granted Wells Fargo’s motion to dismiss, holding that

knowingly presenting false or fraudulent loan applications to FRBs does not

violate the FCA because (1) FRB personnel are not “officer[s], employee[s], or

agent[s] of the United States” within the meaning of § 3729(b)(2)(A)(i); and (2)

the United States does not “provide[] . . . the money . . . requested or demanded”

by Fed borrowers within the meaning of § 3729(b)(2)(A)(ii).1 See United States ex

rel. Kraus v. Wells Fargo & Co. (“Bishop IV”), 11‐cv‐5457, 2018 WL 2172662, at *2

(E.D.N.Y. May 10, 2018).2

      Although we agree that FRB personnel are not “officer[s]” or “employee[s]

. . . of the United States” within the meaning of 31 U.S.C. § 3729(b)(2)(A)(i), we

      1   For the full statutory text as of May 2009 see infra at 14.

      2 Unless otherwise noted, when quoting cases, all internal quotation marks,
citations, and alterations are omitted.

                                             4
conclude that loan requests presented to the FRBs under the Discount Window

and Term Auction Facility are nonetheless “claims” under the FCA because the

FRBs are “agents of the United States” within the meaning of § 3729(b)(2)(A)(i),

and also because the “money . . . requested” by Fed borrowers is “provided” by

the United States to advance a Government program or interest within the

meaning of § 3729(b)(2)(A)(ii).

      The FRBs are instrumentalities of the federal government and the

operating arms of its central bank. See Starr Int’l Co. v. Fed. Reserve Bank of N.Y.,

742 F.3d 37, 40 (2d Cir. 2014). The Federal Reserve Act (“FRA”) empowers the

FRBs, in conjunction with the Board of Governors of the Federal Reserve System

(the “Board”), to issue legal tender and to finance the Fed’s activities by

purchasing public and private debts. The FRA also authorizes the FRBs to

administer the Fed’s emergency lending facilities. Requests for loans made to

these facilities are requests for loans from the United States. And as the FRBs are

required to remit all their excess earnings to the United States Treasury, a

borrower’s failure to pay the appropriate amount of interest on a loan from an

FRB injures the public fisc, not merely the FRBs’ nominal shareholders.

                                           5
      The Fed, as it has evolved over the last century, involves a complex set of

relationships that any court must be wary of unsettling. Thus, the opinion that

follows is narrowly focused on the FCA and our analysis may not be relevant to

questions involving the status of the FRBs in other contexts. Because we conclude

that, in the context of the Fed’s emergency lending facilities, the FCA applies to

fraud involving the FRBs, we VACATE the judgment of the district court and

REMAND the case for further proceedings consistent with this opinion.

                                  BACKGROUND

      On de novo review, as stated infra at 12, we accept the facts as alleged in the

complaint as true. From approximately June 2005 to September 2006, Kraus was

employed by Wachovia Capital Markets LLC (“WCM”), a subsidiary of

Wachovia Corporation (“Wachovia”), as Vice President, Controller for the Real

Estate Capital Markets group, and Controller for the Corporate and Investment

Bank Finance group. From about November 2002 to May 2006, Bishop was

employed by World Savings, Inc. (“WSI”) as a retail salesperson.

      According to Kraus and Bishop, during these periods, and in the years that

followed, Wachovia and WSI (which was acquired by Wells Fargo in October

                                          6
2006) engaged in a “pervasive pattern of financial, regulatory and accounting

fraud.” Joint App’x at 27 (Compl. ¶ 3). Among other things, Wachovia and WSI,

by and through their subsidiaries and affiliates, originated and “securitized”

low‐quality real estate loans and, to avoid financing these loans with the

required amount of equity capital, cooked their books, improperly hiding certain

assets in off‐balance‐sheet entities and classifying them as “trading assets” or

“assets held for sale.” Id. at 28 (Compl. ¶ 3).

      When “cracks started to show in Wachovia’s fragile financial façade,” id. at

59, the bank turned to the Fed for help. As relevant herein, the Fed is comprised

of twelve FRBs, which are separately incorporated banks dispersed

geographically throughout the country, and a Board, which is based in

Washington, D.C. and is an independent agency within the executive branch. See

12 U.S.C. §§ 241‐252, 264, 341‐362.3 Through its banking subsidiary—Wachovia

Bank National Association (“WBNA”)—Wachovia requested billions of dollars

      3 The Fed also contains the Federal Open Market Committee (“FOMC”),
composed of officials from the Board and the FRBs. The FOMC is authorized to
direct the Fed’s open market operations. See 12 U.S.C. § 263.

                                           7
in loans from two of the emergency lending facilities operated by the Fed: the

Discount Window and the Term Auction Facility (“TAF”).

      The Discount Window is a standing facility through which the Fed makes

short‐term loans to depository institutions. See Bloomberg, L.P. v. Bd. of Governors

of the Fed. Reserve Sys., 601 F.3d 143, 145 n.1 (2d Cir. 2010). The terms of these

loans depend on a borrower’s financial condition: The FRA and related

regulations promulgated by the Board authorize the FRBs to extend credit at a

“primary credit rate” as a “backup source of funding to a depository institution .

. . that is in generally sound financial condition,” 12 C.F.R. § 201.4(a), and at a

higher, “secondary credit rate” as “a backup source of funding to a depository

institution that is not eligible for primary credit if, in the judgment of the Reserve

Bank, such a credit extension would be consistent with a timely return to a

reliance on market funding sources,” id. at § 201.4(b).

      FRBs are also authorized to extend longer‐term secondary credit to

depository institutions if “such credit would facilitate the orderly resolution of

serious financial difficulties.” Id. And FRBs may extend emergency credit to

other persons in “unusual and exigent circumstances” if certain further

                                           8
requirements are met. See id. at § 201.4(d). But the FRBs are not permitted to

extend credit through the Discount Window to those institutions that are

insolvent or to those that are borrowing for the purpose of lending to a person

who is insolvent. See id. at § 201.4(d)(5)(i).

      The TAF was a temporary facility created by the Board on December 12,

2007, to increase liquidity in financial markets at the outset of the financial crisis.

The program’s goal was to address the reluctance of financial institutions to

borrow from the Discount Window at that time. Unlike the Discount Window,

the TAF provides financial institutions with loans of up to 84 days in amounts

and at rates set by auction. Only firms in a generally sound condition are eligible

to participate. See id. at § 201.4(e); see also Extensions of Credit by Fed. Reserve

Banks, 72 Fed. Reg. 71,202, 71,202–03 (Dec. 17, 2007).

      During the second half of 2008, Wachovia borrowed substantial amounts

from the TAF and the Discount Window. For example, on October 6, 2008,

WBNA borrowed $29 billion from the Discount Window at the primary credit

rate, then 2.25%. Two days later, on October 8, WBNA borrowed another $7

billion at 1.75%. On October 9, WBNA borrowed $15 billion from the TAF at a

                                            9
rate of 1.39%, and on October 23 the bank won at auction a $15 billion TAF loan

at a rate of 1.11%. See Joint App’x at 147. These loans were not enough to enable

Wachovia to survive as a standalone entity, and Wachovia merged into Wells

Fargo in December. Thereafter, Wells Fargo itself sought loans from the Fed,

including $15 billion in January 2009 and $30 billion in February 2009. Wells

Fargo borrowed these sums at an interest rate of 0.25%.

      According to relators, Wachovia, WBNA, and Wells Fargo were not

eligible for loans at these highly favorable interest rates. Among other things,

WBNA and Wells Fargo were inadequately capitalized and in poor financial

condition. The banks are alleged to have falsely certified their compliance with

the material legal requirements of the Fed’s programs, including that they were

“not in violation of any laws or regulations in any respect which could have any

adverse effect whatsoever upon the validity, performance or enforceability of

any of the terms of” their lending agreements with the FRBs. Id. at 522

(Operating Circular No. 10 at § 9.1(b)).

                                           10
      In November 2011, Kraus and Bishop4 filed the instant FCA action on

behalf of the United States against Wells Fargo. Relators allege that Wells Fargo

and Wachovia fraudulently requested loans from the FRBs and that, through the

Fed’s emergency lending facilities, “the United States provided significant

funding . . . to the Defendants, amounting to at least tens of billions of dollars.”

Joint App’x at 137 (Compl. ¶ 241).

      Defendants moved to dismiss, and on July 24, 2015 the district court issued

an opinion granting that motion, holding that relators’ complaint failed to allege

false claims under the FCA. See United States ex rel. Kraus v. Wells Fargo & Co., 117
F. Supp. 3d 215, 228 (E.D.N.Y. 2015) (“Bishop I”). Relators appealed, and we

affirmed. See Bishop v. Wells Fargo & Co., 823 F.3d 35, 39 (2d Cir. 2016) (“Bishop

II”). Relators petitioned for certiorari and, the Supreme Court vacated our

decision in Bishop II and remanded the case for further consideration in light of

its opinion in Universal Health Serv., Inc. v. United States ex rel. Escobar, 136 S. Ct.
4Kraus had been a Vice President at WCM until his termination in
September 2006. Bishop was a salesperson at WSI until his termination in May
2006. Each alleges that his termination was due to raising issues with his
superiors about his employer’s predatory or potentially illegal business practices.

                                            11
1989 (2016). Thereafter, we vacated the district court’s judgment and remanded

the case “for the district court to determine, in the first instance, whether the

relators have adequately alleged the materiality of the defendants’ alleged

misrepresentations.” See Bishop v. Wells Fargo & Co., 870 F.3d 104, 107 (2d Cir.

2017) (“Bishop III”) (per curiam).

      On remand, relators obtained leave to amend, and defendants once again

moved to dismiss. On May 10, 2018, the district court granted that motion,

holding that loan requests made to FRBs are not “claims” within the meaning of

the FCA because (1) FRBs are neither part of the government, nor agents of the

government, and (2) the United States does not “provide[] . . . the money . . .

requested or demanded” by banks that borrow from the Fed’s emergency

lending facilities. Bishop IV, 2018 WL 2172662, at *2. Relators timely appealed.

                                     DISCUSSION

      We review the district court’s grant of defendants’ Rule 12(b)(6) motion to

dismiss de novo, “accepting all factual claims in the complaint as true and

drawing all reasonable inferences in the plaintiff’s favor.” O’Donnell v. AXA

Equitable Life Ins. Co., 887 F.3d 124, 128 (2d Cir. 2018).

                                            12
   I.       Statutory Framework

        The FCA was “originally adopted following a series of sensational

congressional investigations into the sale of provisions and munitions to the War

Department” during the Civil War. United States v. McNinch, 356 U.S. 595, 599

(1958). “Testimony before the Congress [at that time] painted a sordid picture of

how the United States,” during a national emergency, “had been billed for

nonexistent or worthless goods, charged exorbitant prices for goods delivered,

and generally robbed in purchasing the necessities of war.” Id. The Act was

passed in sum and substance “to stop this plundering of the public treasury.” Id.

        As relevant here, the FCA imposes liability on any person who either

“knowingly presents . . . a false or fraudulent claim for payment or approval,” 31

U.S.C. § 3729(a)(1)(A), or “knowingly makes . . . a false record or statement

material to a false or fraudulent claim,” id. at § 3729(a)(1)(B); see also Kellogg

Brown & Root Servs., Inc. v. United States ex rel. Carter, 135 S. Ct. 1970, 1973 (2015).5

The term “‘claim”

        Relators bring their case under both an “implied certification” theory (to
        5

the extent that the banks fraudulently represented their eligibility for the loans

                                           13
             means any request or demand, whether under a contract
             or otherwise, for money or property and whether or not
             the United States has title to the money or property,
             that—
                   (i) is presented to an officer, employee, or agent of
                   the United States; or
                   (ii) is made to a contractor, grantee, or other
                   recipient, if the money or property is to be spent or
                   used on the Government’s behalf or to advance a
                   Government program or interest, and if the United
                   States Government—
                           (I) provides or has provided any portion of
                           the money or property requested or
                           demanded; or
                           (II) will reimburse such contractor, grantee,
                           or other recipient for any portion of the
                           money or property which is requested or
                           demanded.

31 U.S.C. § 3729(b)(2)(A) (emphasis added).6

by concealing that they were not in sound financial condition) and an “express
certification” theory (to the extent the banks made explicit certifications that they
were in compliance with Section 9.1(b) of the Fed’s Operating Circular 10).
Although defendants challenged relators’ ability to state a claim under these
theories, the district court dismissed the case without reaching these issues.
Accordingly, the adequacy of relators’ pleadings in this respect is not before the
Court on appeal.

      6This definition is as‐revised under the Fraud Enforcement and Recovery
Act (“FERA”), Pub. L. No. 111‐21, passed in May 2009 to “improve the
enforcement of mortgage fraud” as well as to address frauds related to the

                                          14
   II.      Requests made to FRBs for loans from the Fed’s emergency lending
            facilities are “claim[s]” within the meaning of the False Claims Act

         The text of the FCA is capacious. Fraudulent claims are actionable not only

when they are presented to an “officer” or “employee” of the United States, but

also when they are presented either to “an agent of the United States” or to a

“contractor, grantee, or other recipient” so long as (as to the contractors,

grantees, or other recipients) a portion of the money is “provided” (or

“reimburse[d]”) by the United States and used to advance its interests. 31 U.S.C.

§ 3729(b)(2)(A). This language reflects a broad legislative purpose that is most

faithfully effectuated by recognizing that the FCA applies, in some cases, to

functional instrumentalities of the government and to agents pursuing its ends.

As the Supreme Court has confirmed, “the objective of Congress was broadly to

protect the funds and property of the Government from fraudulent claims,

Federal assistance programs implemented in the wake of the 2008 financial crisis.
Although relators’ allegations involve claims made before FERA went into effect,
the district court found that the definitional changes were not relevant, neither
party argued otherwise, and the case was decided under the current definition.
To the extent defendants now raise arguments about the proper interpretation of
the prior version of the statute, we need not decide if those arguments are
waived because they are moot given our analysis below.

                                          15
regardless of the particular form, or function, of the government instrumentality

upon which such claims were made.” Rainwater v. United States, 356 U.S. 590, 592

(1958) (emphasis added).

      However, the FCA was not “designed to reach every kind of fraud

practiced on the Government.” McNinch, 356 U.S. at 599. For example, the Act

does not reach frauds directed at private entities that only incidentally lead to

payments with money provided by the government. See Allison Engine Co. v.

United States ex rel. Sanders, 553 U.S. 662, 672 (2008) (“Recognizing a cause of

action under the FCA for fraud directed at private entities would threaten to

transform the FCA into an all‐purpose antifraud statute.”).

      The overarching question in this case, therefore, is whether a fraudulent

loan request made to one of the FRBs is an effort to defraud a private entity or an

effort to defraud the United States. See id. at 672 (explaining that “it must be

shown that the conspirators intended ‘to defraud the Government’”). The

specific questions are whether (1) FRB personnel are “officer[s]” or “employee[s]

. . . of the United States” within the meaning of § 3729(b)(2)(A)(i); (2) the FRBs, in

operating the Fed’s emergency lending facilities, are “agent[s] of the United

                                          16
States” within the meaning of § 3729(b)(2)(A)(i); or (3) fraudulent loan requests

knowingly presented to one or more of the FRBs are “claim[s]” under the FCA

because the “money . . . requested” is “provided” by the United States within the

meaning of § 3729(b)(2)(A)(ii). We address each question in turn.

      A. FRB personnel are not “officer[s]” or “employee[s] . . . of the United
         States” within the meaning of § 3729(b)(2)(A)(i)

      First, we conclude that FRB personnel are not “officer[s]” or “employee[s] .

. . of the United States” within the meaning of § 3729(b)(2)(A)(i). The relevant

question is not whether the FRBs functionally exercise governmental powers; the

question instead is whether FRB personnel qualify as “officer[s]” or

“employee[s]” of the United States under the FRA. See Lebron v. Nat’l R.R.

Passenger Corp., 513 U.S. 374, 392 (1995) (recognizing Congress’s power to

determine which entities are to be considered governmental for various statutory

purposes); First Nat’l City Bank v. Banco Para el Comercio Exterior de Cuba, 462 U.S.
611, 626–27 (1983) (“[G]overnment instrumentalities [such as central banks]

                                          17
established as juridical entities distinct and independent from their sovereign

should normally be treated as such.”).7

      Here, Congress has gone out of its way to formally separate the FRBs from

the government. The FRBs are not part of any executive department or agency.

See U.S. Shipping Bd. Emergency Fleet Corp. v. W. Union Tel. Co., 275 U.S. 415, 425‐

26 (1928) (“Instrumentalities like . . . the federal reserve banks . . . are not

departments of the Government”); Scott v. Fed. Reserve Bank of Kan. City, 406 F.3d
532, 536 (8th Cir. 2005). Nor do they have the authority to promulgate

regulations with the force and effect of law. See Scott, 406 F.3d at 536; 12 US.C. §

248(k). Instead, they are corporations, 12 U.S.C. § 341 (“a Federal reserve bank

      7 Courts need not engage in a functional analysis, see, e.g., Rainwater, 356
U.S. 590; McNinch, 356 U.S. 595, where Congress’s intent is clear on the face of
the statute, see, e.g., United States ex rel. Totten v. Bombardier Corp., 380 F.3d 488,
492 (D.C. Cir. 2004) (examining Amtrak’s enabling statute and concluding that
Amtrak personnel are not officers or employees of the United States for purposes
of the FCA); United States ex rel. Adams v. Aurora Loan Servs., Inc., 813 F.3d 1259,
1260‐61 (9th Cir. 2016) (examining the relevant statute and concluding that
claims submitted to Fannie Mae and Freddie Mac are not presented to officers or
employees of the United States); cf. Lamie v. U.S. Trustee, 540 U.S. 526, 534 (2004)
(“[W]hen the statuteʹs language is plain, the sole function of the courts—at least
where the disposition required by the text is not absurd—is to enforce it
according to its terms.”).

                                            18
[is] a body corporate”), that operate “under the supervision and control of a

board of directors,” which “shall perform the duties usually appertaining to the

office of directors of banking associations.” 12 U.S.C. § 301; see also 12 U.S.C. §§

302–305.

      This separation from general government dates to the founding of the Fed

in 1913 when Congress, following other major advanced economies, see, e.g.,

Cong. Rec. 6569 (April 29, 1935), decided to leave governance of money and

credit, at least in part, in private hands, see H.R. Rep. No. 69 (“House Report”), at

18 (1913) (describing the Fed’s structure as consisting of “a combination of public

and private characteristics”); Melcher v. Fed. Open Mkt. Comm., 644 F. Supp. 510,

521 (D.D.C. 1986), aff’d, 836 F.2d 561 (D.C. Cir. 1987) (“Ever since the birth of this

nation, the regulation of the nation’s monetary systems has been governed by a

subtle and conscious balance of public and private elements.”); Fasano v. Fed.

Reserve Bank of N.Y., 457 F.3d 274, 277 (3d Cir. 2006) (FRBs are formed as private

corporations “[t]o aid in achieving Congress’s goal of insulating them from

political pressure”). As the Federal Reserve Bank of Richmond (“FRBR”) and the

Federal Reserve Bank of New York (“FRBNY”) explain, the legislative history of

                                          19
the FRA suggests that Congress intended the FRBs to “serve the interests of, but

stand apart from, the sovereign.” Brief of Amici Curiae Federal Reserve Bank of

New York and Federal Reserve Bank of Richmond (“FRB Amici”) at 9.

      Although, in the intervening decades, Congress has transferred functional

ownership and control of the FRBs to the Treasury and to the Board, see, e.g., The

Banking Act of 1935, Pub. L. No. 305 (1935)8; the Federal Reserve Reform Act of

      8 Cong. Rec. 13706 (statement of Rep. Steagall) (August 19, 1935) (“we have
written into [the Banking Act of 1935] the principle that the Government, the
sovereign people of the United States, shall have control of the Board that
dictates the vast powers of the Federal Reserve System”); id. (explaining that the
Act “represent[s] a great reform [and] . . . plan for the exercise of the sovereign
power of the Government to control the Nation’s credit and monetary policy”);
Cong. Rec. 6569 (House, April 29, 1935) (statement of Rep. Hollister) (explaining
that “Title II gives first to the [Board] greater control over the management of
various [FRBs] than it has had in the past. It gives to the Executive somewhat
greater control over the [Board] itself than the Executive has had in the past. It
gives to the Board much greater powers over the operation of Federal Reserve
banks and over the whole credit system of the country than the board has had in
the past . . . when you take the cumulative combination of four or five different
steps and read them as a whole, you will realize very clearly how much greater
Executive control will be placed over the credit resources of the country”).

                                        20
1977, Pub. L. 95–188,9 the Monetary Control Act of 1980, Pub. L. 96‐221,10

Congress has carefully retained the formal separation of the FRBs from the

executive branch. Indeed, as amici point out, see FRB Amici at 10, Congress has

considered the status of the FRBs on multiple occasions and decided not to

convert them formally into government agencies, see, e.g., Hearings Before

Subcomm. No. 3 of the Comm. on Banking & Currency on H.R. 8516 & H.R.

8627, 86th Cong. 1–6 (1960) (bills’ text); id. at 6–7 (description). Hence, we agree

with defendants that fraudulent loan requests made to the FRBs do not qualify as

claims under the first clause of § 3729(b)(2)(A)(i).

      9  The Federal Reserve Reform Act, among other things, codified the dual
mandate, see 12 U.S.C. § 225a, and criminalized conflicts of interest at the FRBs,
see 18 U.S.C. 208(a), subjecting FRB directors, officers, and employees to the same
provisions governing the “[a]ctivities of officers and employees [of the United
States] in claims against, and other matters affecting, the Government,” 18 U.S.C.
§ 205.

      10The Monetary Control Act, among other things, required the Board to
annually reduce the FRB operating budgets in line with the amount of services
the FRBs provided to member banks and governmental entities and to transfer
the savings to the United States Treasury. See 12 U.S.C. 248a(d).

                                          21
      B. FRBs extend emergency loans as “agents of the United States” within
         the meaning of § 3729(b)(2)(A)(i)

      The alleged fraudulent loan applications are nonetheless “claims” under

the FCA if the FRBs act as “agents of the United States” under § 3729(b)(2)(A)(i)

when operating the Fed’s emergency lending facilities. We conclude that they do

on a narrow reading where we confine ourselves only to the circumstances at

hand, which require us to determine the meaning of the FCA in the context of

extending emergency credit.

      Agency is a legal concept that requires: (1) manifestation by the principal

that the agent shall act for him; (2) the agent’s acceptance of the undertaking; and

(3) the understanding of the parties that the principal is to be in control of the

undertaking. See Cleveland v. Caplaw Enters., 448 F.3d 518, 522 (2d Cir. 2006).

      Here, all three elements are met: the United States created the FRBs to act

on its behalf in extending emergency credit to banks; the FRBs extend such

credit; and the FRBs do so in compliance with the strictures enacted by Congress

and the regulations promulgated by the Board, an independent agency within

the executive branch. Although the Board’s ability to micromanage the extension

of credit by the FRBs is limited to review and oversight, this is by design and

                                          22
consistent with agency principles. See Restatement (Third) of Agency § 2.02

(2006). The United States’ overall control is undisputed. Congress can, among

other things, amend the FRA to adjust or revoke the ability of the FRBs to operate

the Fed’s facilities. See 12 U.S.C. § 347b(a) (providing that “[a]ny Federal Reserve

bank, under rules and regulations prescribed by the Board of Governors of the

Federal Reserve System, may make advances to any member bank” on notes

“secured to the satisfaction of such Federal Reserve bank”). And the Board can

promulgate new rules governing the extension of credit. See id.; see also 12 C.F.R.

Part 201 (establishing parameters governing FRB lending). Among other things,

under the existing statutory parameters, the Board—not the FRBs—determines

the interest rates that the FRBs charge on their loans. See 12 U.S.C. § 357

(providing that the rates are “subject to review and determination” by the

Board); 12 C.F.R. § 201.4 (setting the terms governing the availability of credit).

Indeed, the Lending Agreement (which allowed the Banks to borrow under the

primary credit program and required the Banks to make the representations and

warranties of the Fed’s Operating Circular No. 10) itself states explicitly that

advances to banks from FRBs must be “in accordance with the Federal Reserve

                                          23
Act and regulations promulgated thereunder by the Board of Governors of the

Federal Reserve System.” Joint App’x at 513.

      Amici contend that the FRBs are not agents of the United States because

the Board does not have the right to direct FRB lending decisions. See FRB Amici

at 13 (arguing that FRBs “perform lending operations under authority granted to

them expressly by the FRA and are not agents of any Government entity”); Brief

Amicus Curiae of the United States and the Federal Reserve Board in Support of

Neither Party (“United States Amici”) at 15 (arguing that “[t]he authority to

make these loans is directly granted to the [FRBs]… and the lending activities of

the [FRBs] do not take place on behalf of or under the delegated authority of the

board”). Defendants advance a similar argument. See Brief and Supplemental

Appendix for Defendants‐Appellees (“Def. Br.”) at 41 (“FRBs are not acting as

Board delegates when operating the Programs”).

      We are unpersuaded for three reasons. First, agency law unquestionably

permits a principal to delegate the power to act on its behalf to another party and

to give that party some discretion. See, e.g., Restatement (Third) of Agency § 2.02

(2006) (“If a principal states the agent’s authority in terms that contemplate that

                                         24
the agent will use substantial discretion to determine the particulars, it is

ordinarily reasonable for the agent to believe that following usage and custom

will be acceptable to the principal.”); id. (“The principal’s instructions . . . may [in

some circumstances] reasonably be understood by the agent to authorize the

agent to exercise discretion.”). Accordingly, that the law empowers the FRBs to

decide, in their judgment, when to extend emergency loans, see generally 12

U.S.C. § 347b(b)(4) (“A Federal Reserve bank shall have no obligation to make,

increase, renew, or extend any advance or discount . . . to any depository

institution.”), does not mean that the FRBs are acting on their own behalf and not

on behalf of the United States.

      Second, the Board exercises substantial control over FRB emergency

lending activities through its statutory authority to, among other things,

“examine at its discretion the accounts, books, and affairs of each [FRB],” 12

U.S.C. § 248(a)(1); “supervise and regulate . . . the issue and retirement of Federal

Reserve notes,” id. at § 248(d); “suspend or remove any officer or director of any

[FRB],” id. at § 248(f); require the FRBs to “writ[e] off [] doubtful or worthless

assets” from their balance sheets, id. at § 248(g); “suspend, for the violation of

                                           25
any of the [applicable FRA] provisions…the operations of any [FRB], to take

possession thereof, [and to] administer the same,” id. at § 248(h); “exercise

general supervision” over the FRBs, id. at § 248(j); “delegate” certain Board

functions to the FRBs, id. at § 248(k); levy assessments upon the FRBs to pay the

Board’s operational expenses, id. at § 243; approve the appointment of the

president and chief executive officer of FRBs, see id. at § 341 (fifth); appoint the

chair and deputy chair of the board of directors of the FRBs, id. at § 305; and, “in

its discretion . . . suspend” any bank from using the “credit facilities of the

Federal Reserve System,“ id. at § 301, i.e. the lending facilities at issue in this case.

The Board is even empowered to refuse to provide FRBs with Federal Reserve

notes, as discussed further herein. See id. at §§ 411‐12; id. at § 414 (providing that

the Board “shall have the right . . . to grant in whole or in part, or to reject

entirely the application of any Federal Reserve bank for Federal Reserve notes”).

      Third, the FCA does not require that “agents of the United States” be

agents of a United States agency. It requires merely that the FRBs act, and be

empowered by law to act, on behalf of the United States. While the Board’s

formal authority to control FRB lending decisions may be constrained in certain

                                           26
respects,11 there is no such constraint on the United States. Indeed, the FRBs

extend emergency loans pursuant to a statutory delegation from Congress and

according to the terms set forth by Congress in the FRA. Congress may revoke

this authority at any time or change the terms of its exercise. See Am. Bank & Tr.

Co. v. Fed. Reserve Bank of Atlanta, 256 U.S. 350, 359 (1921) (“The policy of the

Federal Reserve Banks is governed by the policy of the United States with regard

to them.”). Indeed, if the FRBs do not act on behalf of the United States, on whose

behalf do they act? No party contends that FRB emergency lending is done for

the profit of the FRBs’ nominal shareholders—the profits on FRB loans accrue

entirely to the United States Treasury, rather than to the FRB’s member banks.

See Starr, 742 F.3d at 40 (“[The FRBs] are not operated for the profit of

      11 Amici and defendants point out that we concluded in a Freedom of
Information Act case that “the lending activities of the Federal Reserve Banks do
not take place ‘on behalf of’ or under the ‘delegated authority’ of the Board.” Fox
News Network, LLC v. Bd. of Governors of the Fed. Reserve Sys., 601 F.3d 158, 161 (2d
Cir. 2010). But the FRBs need not be acting on behalf of the Board to be agents of
the United States. Nor does Fox News involve the concept of “agency” under the
FCA. Rather, its focus is the Fed’s administrative structure for document control
purposes – quite a different context from that presented here.

                                          27
shareholders; rather, they were created and are operated in furtherance of the

national fiscal policy.”).

      Amici concede that the FRBs are, as they put it, “federal instrumentalities.”

United States Amici at 7. And they concede that FRBs are not merely standalone

instrumentalities; they are part of a system created by Congress and subject to

the Board’s general supervisory authority. See McKinley v. Bd. of Governors of Fed.

Reserve Sys., 647 F.3d 331, 332 (D.C. Cir. 2011); 12 U.S.C. § 341. As amici put it, the

FRBs are

      components of the Federal Reserve System [that] operate in the public
      interest, and, specifically, in furtherance of [the] system’s functions of
      conducting the nation’s monetary policy, promoting the stability of the
      financial system, promoting the soundness of individual financial
      institutions, fostering payment and settlement system safety, and
      promoting consumer protection and community development.

United States Amici at 6. Further, as amici explain, “[o]ne [of the] function[s of

the FRBs] . . . is to serve as backup lenders for banks and other depository

institutions in their regions.” Id. at 7; FRB Amici at 5 (“The [FRBs] are federal

instrumentalities—corporations chartered pursuant to the FRA to perform the

central bank’s operational responsibilities.”); id. at 7 (“Congress established

Federal Reserve Banks for public purposes to be the operating arm of the nation’s

                                          28
central bank, in accordance with the statutory mission set out in the FRA.”); see

also Starr, 742 F.3d at 40; Fasano, 457 F.3d at 281 n.6 (collecting cases).

      Moreover, given the purpose of the FCA, we see no reason to depart from

the plain meaning of the phrase “agent of the United States” here. One need only

put the instant allegations into context to see why. As discussed further herein,

this case involves the creation and lending of tens of billions of dollars. In the

best of times, few if any entities can borrow such sums even with advance notice

and planning. Yet defendants were able to secure these amounts on short notice

during a period when private financing markets were all‐but‐frozen. Defendants’

alleged underpayment of interest reduced FRB earnings, which dollar for dollar

reduced the sums the FRBs transferred to the Treasury. Fraud during a national

emergency against entities established by the government to address that

emergency by lending or spending billions of dollars is precisely the sort of fraud

that Congress meant to deter when it enacted the FCA.

      Our conclusion that the FRBs act as “agents of the United States” within

the meaning of the FCA when extending emergency credit, does not bear on the

question of whether the FRBs may or may not be agents in other contexts, nor do

                                           29
we conclude that the FRBs are agents within the FCA in any other context. We

hold only that, in this limited context, the FRBs qualify as “agents of the United

States” within the meaning of § 3729(b)(2)(A)(i) of the FCA.12

      C. The United States “provides” the money requested by borrowers
         seeking loans from the Fed’s emergency lending facilities within the
         meaning of § 3729(b)(2)(A)(ii)

      We also conclude that the alleged fraudulent loan applications are

“claims” under the FCA because the United States “provides” the money

      12  We see no tension between our conclusion that the FRBs act as agents of
the United States when extending emergency loans and the fact that the FRA
expressly designates the FRBs as “fiscal agents” with respect to certain matters
(that do not include extending emergency loans). See 12 U.S.C. §§ 391‐395.
Congress specified the fiscal agency relationship for the purpose of putting the
FRBs under the direction of the Treasury Department in certain limited
circumstances, not to preclude an agency relationship between the United States
and the FRBs in other contexts. See, e.g., 12 U.S.C. § 391 (instructing the FRBs to
take various actions “upon the direction of the Secretary of the Treasury” and
stating that “when required by the Secretary of the Treasury, [the FRBs] shall act
as fiscal agents of the United States”). The text of the FCA does not require that
claims be submitted to agents of the Treasury Department; it refers instead to
“agents of the United States.” Nor does our conclusion that the FRBs are “agents
of the United States” within the meaning of subsection (ii) make them “agencies”
of the United States, as defendants seem to suggest. See Def. Br. at 41. Our
holding is limited to the False Claims Act and to the circumstances presented in
this case.

                                         30
“requested” by borrowers from the Fed’s emergency lending facilities within the

meaning of § 3729(b)(2)(A)(ii) and the money requested is to be spent to advance

a Government program or interest.

      Subsection (ii) defines “claim,” even more broadly than subsection (i), to

encompass demands or requests made to a “contractor, grantee, or other

recipient,” if two conditions apply: first, “if the money or property is to be spent

or used on the Government’s behalf or to advance a Government program or

interest,” and second, if the United States Government “provides or has

provided any portion of the money or property requested or demanded,” or

“will reimburse [the recipient of the demand] for any portion of the money or

property which is requested or demanded. . . .” 31 U.S.C. § 3729(b)(2)(A)(ii)(I)(ii).

Amici argue that the Fed’s emergency lending facilities do not qualify as money

requested or demanded by the U.S. because the FRBs are not funded by the

United States Treasury. Defendants make a similar point. See Brief and

Supplemental Appendix for Defendants‐Appellees (“Def. Br.”) at 29 (“Courts

have consistently looked to the involvement of government funds in determining

whether a claim has been made.”); id. at 51 (“No U.S. Treasury funds were used

                                          31
to supply any part of the Advances nor were the FRBs reimbursed for Advances

by the U.S. Treasury.”); see also id. at 49 (“The Advances are also not claims

because they are not made with or reimbursed by U.S. Treasury funds.”).

      But the FCA nowhere limits liability to requests involving “Treasury

Funds.” FRB Amici at 14. The text of the FCA is deliberately broad, including

“any request or demand . . . for money or property . . . whether or not the United

States has title to the money or property,” as long as “the United States

Government . . . provides or has provided any portion of the money or property

requested or demanded.” 31 U.S.C. § 3729(b)(2)(A) (emphasis added). The statute

makes no mention of the Treasury Department. Indeed, as the United States and

the Board concede, the word “’provides’ is properly read to reach some

circumstances in which the government makes money available through an

exercise” of its legal authority outside the appropriations process. United States

Amici at 18; United States ex rel. Heath v. Wisconsin Bell, Inc., 111 F. Supp. 3d 923,

926 (E.D. Wis. 2015) (“The fact that [Universal Service] Fund money does not

pass through the Treasury does not make the government any less its source.”).

                                           32
      This is such a circumstance. Just as individuals and businesses maintain

bank accounts at banks like Wachovia and Wells Fargo, banks like Wachovia and

Wells Fargo maintain bank accounts at the FRBs. The balances in these accounts

are called “reserves.”13 Banks like Wachovia and Wells Fargo are required by

Congress and by the Board to maintain certain minimum amounts of reserves in

their accounts. See 12 U.S.C. § 461 (establishing “reserve requirements”). Reserve

requirements may also be satisfied with cash (i.e., Federal Reserve notes), which

is functionally equivalent to reserve balances; reserve balances and cash are the

two components of “base money” (also called the monetary base).14 Both types of

base money are liabilities, not assets, of the FRBs. (For ordinary private‐sector

      13 While paper currency may be held by anyone, reserve balances may be
maintained only by banks and governmental entities. See, e.g., 12 U.S.C. § 342
(authorizing FRBs to maintain accounts for member banks, other depository
institutions, and the U.S. Treasury Department); id. at § 391 (authorizing FRBs to
maintain accounts for government‐sponsored enterprises in the residential
mortgage business); id. at §§ 1435, 1452(d), 1723a(g) (authorizing FRBs to
maintain accounts for foreign governments, foreign banks, and central banks); id.
at §§ 347d & 358 (authorizing FRBs to maintain accounts for the International
Monetary Fund and the World Bank).

      14See Board of Governors of the Federal Reserve System, Aggregate
Reserves of Depository Institutions and the Monetary Base ‐ H.3, Table 2,
available at https://www.federalreserve.gov/releases/h3/current.

                                          33
banks, base money can only be an asset not a liability.) In other words, the FRBs

are the issuers of base money. They do not lend out preexisting funds; they

create “funds” in the most elemental sense. They perform this function on behalf

of the United States, as federal instrumentalities. When banks request loans from

the FRBs, the FRBs extend those loans by increasing these reserves. As FRB

Amici explain:

      When the Fed makes a $100 million loan to [a bank], the bank is credited
      with $100 million of reserves . . . No preexisting “source” of funds exists.
      Crediting the loan amount to the borrowing bank’s reserve account creates
      new reserves, increasing the overall level of reserves in the banking system
      by exactly the amount lent.

FRB Amici at 15‐16; see also United States Amici at 16. 15 These new reserves are

created ex nihilo, at a keystroke. They are promises by the FRBs to pay Federal

Reserve notes (dollar bills) to the banks on demand.16 See FRB Amici at 16.

      15 Although banks and other depository institutions can also create money
in the form of deposits, only the Fed can issue legal tender. Banks must always
stand ready to redeem their deposit credits in Federal Reserve notes. The Fed
faces no such constraint. See Joseph H. Sommer, Where is a Bank Account?, 57 MD.
L. REV. 1, 13 (1998) (“[r]edemption of currency can only compel more currency”);
Morgan Ricks, Money as Infrastructure, 3 COLUMB. BUS. L. REV. 757, 775 (2018).

      16   Accordingly, reserves appear as liabilities on the FRBs’ balance sheets.

                                           34
      The FRBs’ promises to pay notes serve as money or legal tender because

they must be accepted by the Treasury and by other banks as payment. As the

United States explains, “the United States vested the Reserve Banks with the

authority to make the loans at issue and to credit the Reserve Bank accounts of

borrowing institutions, thereby increasing the overall money supply.” United

States Amici at 17. Our Constitution bestows this power on Congress. See U.S.

Const. art. I, § 8, cl. 5 (“The Congress shall have Power . . . To coin Money,

regulate the Value thereof . . .”); see also Knox v. Lee, 79 U.S. 457, 565‐66 (1871)

(explaining that it “is undoubtedly the public law of this country” that Congress

determines the standard of money and what instruments may pass as legal

tender).17 Had Congress not delegated this power to the Fed, the FRBs would be

See FRB Amici at 16 (“For example, when a Federal Reserve Bank extends credit
through the Discount Window, the Federal Reserve Bank records an asset — a
loan — in the amount of the loan (which equals the amount of reserves created),
and a corresponding liability — the reserves credited to the borrowing bank’s
reserve account.”).

      17Knox v. Lee traces the state’s prerogative back to The Case of Mixed Money,
Davies Rep. 48 (1605), reprinted in 2 Cobbett’s State Trials 113, 118 (1809) (“the
king by his prerogative may make money of what matter and form he pleaseth,
and establish the standard of it, so may he change his money in substance and

                                           35
unable to extend the loans at issue in this case. And we see no reason why

Congress’s decision to separate the FRBs from the Board and the Board from the

Treasury Department should alter our conclusion that the United States is the

source of the purchasing power conferred on the banks when they borrow from

the Fed’s emergency lending facilities.

      The loans in this case are also money provided by the United States in a

further sense. The Board puts Federal reserve notes into circulation by supplying

them to the FRBs, which are the actual direct issuers. See 12 U.S.C. §§ 411‐12.18

impression, and enhance or debase the value of it, or entirely decry and annul
it”); id. at 116(“no other person” may make money “without special license or
commandment of the king”).
        18 Federal law recognizes two types of legal tender in the United States:

“United States coins” and “Federal reserve notes.” 31 U.S.C. § 5103; see also 12
U.S.C. § 411. The Treasury Department physically creates both. See 31 U.S.C. §
304; id. at § 5114; id. at § 303, 12 U.S.C. § 418. However, while the Treasury
Department determines the supply of United States coins, 31 U.S.C. § 5111(a)(1)
(“The Secretary of the Treasury . . . shall mint and issue coins. . . in amounts the
Secretary decides are necessary to meet the needs of the United States”), the
Board controls the supply of notes, 12 U.S.C. § 411 (“Federal reserve notes, to be
issued at the discretion of the Board . . . are hereby authorized”); id. at § 419. The
Fed puts these notes into circulation by providing them to the FRBs which
ultimately exchange them for financial assets held by the private sector. For
example, the FRBs promise to pay notes to private banks in order to purchase
from them debt securities of the United States issued by the Treasury

                                          36
Thus, when banks like Wachovia and Wells Fargo withdraw the proceeds of

loans requested from (and extended by) the FRBs, the banks quite literally

receive money “provided” by the Board, i.e. money made available and/or

supplied by the United States. See Provide, MERRIAM‐WEBSTER (11th ed. 2003)

(defining “provide” as “to supply or make available”). The Board, like the U.S.

Mint, is an agency of the United States. That the Board, unlike the Mint, is not

also a bureau of the Treasury Department is of no legal significance here.

      The Board’s argument that the FCA does not apply in the circumstances

presented here because the government does not exercise “substantial control

over the collection and disbursement of the funds [involved]” (i.e., because the

FRBs determine whether to exercise the lending authority in any specific case), is

unpersuasive. United States Amici at 18. The FCA statutory text covers not only

money that the government specifically allocates, but also money “reimburse[d]”

to the government when “requested or demanded” from the recipient. 31 U.S.C.

Department. These private banks then withdraw notes when they need physical
currency. And, as relevant here, the FRBs are authorized to lend these notes to
private banks when certain further requirements are met. See id. at §§ 341 et seq.

                                         37
§ 3729(b)(2)(A)(ii)(II). By definition, a reimbursement procedure gives control (at

least to some extent) to the recipient rather than the government.

      Further, we are not moved, as the district court was, by the fact that

private banks serve as the FRBs’ nominal shareholders. See 12 U.S.C. § 282; Joint

App’x at 1179‐80. Today, the United States, not the nominal shareholders, are the

economic owners of the FRBs. Among other things, Congress has provided that

the net earnings of the FRBs be “recorded as revenue by the Department of the

Treasury,” FRB Amici at 17, and the FRBs are required to remit all their excess

earnings to the United States Treasury, see id. at 18 (“Between 2007 and 2011—

when the loans here were extended—the Board of Governors required Federal

Reserve Banks to transfer excess earnings to the United States Treasury.”).19

Thus, the “capital” contributions made by member banks function as debt

interests owned by the member banks, not equity interests. See FRB Amici at 8

(“Commercial banks acquire Federal Reserve Bank stock not for ownership or

control, but because it is a condition of membership in the Federal Reserve

      19   Congress codified this requirement in 2015. See 12 U.S.C. § 289(a)(3)(B).

                                           38
System. See 12 U.S.C §§ 282, 321.”); id. (“The stockholders of Federal Reserve

Banks receive semiannual, statutorily capped dividends on their holdings, see 12

U.S.C. § 289, but do not possess a residual equity interest in Federal Reserve

Banks’ assets, see 12 U.S.C. § 290”); Jesse H. Choper, John C. Coffee, Jr., & Ronald

J. Gilson, CASES AND MATERIALS ON CORPORATIONS 33 (1995) (“[Shareholders] are

the ‘residual claimants,’ who bring to the firm their special ability at risk‐

bearing.”).20 And, as the United States explains, “in the event that a[n] [FRB] is

liquidated, any value remaining (after debts are paid and certain required

payments are made) . . . become[s] the property of the United States.” United

States Amici at 6 (citing 12 U.S.C. § 290). Accordingly, a bank’s failure to pay the

applicable amount of interest on a loan from an FRB injures the public fisc, not

      20Member banks also lack most of the control rights associated with
ownership. Although member banks are authorized to vote for six of each
Reserve Bank’s nine directors (the Class A and B directors), 12 U.S.C. § 304, they
are permitted to serve only as Class A directors, id. § 303, Class B directors must
“represent the public” not the member banks, id § 302, and the Board of
Governors alone is empowered to appoint the chair and deputy chair of the FRB
boards. Further, the chair and deputy chair must be Board‐appointed Class C
directors, and only Class B and C directors—with the approval of the Board—are
permitted to select FRB Presidents.

                                          39
the FRBs’ nominal shareholders; money created for the Term Auction Facility or

the Discount Window is as much a product of the “public fisc” as money that is

distributed by the Treasury Department.21

      We are similarly unpersuaded by defendants’ argument, seconded by

amici, that 12 U.S.C. § 244 forecloses FCA liability. Section 244 provides that

“funds derived” by the Board through assessments on the FRBs “shall not be

construed to be Government funds or appropriated moneys.” 12 U.S.C. § 244.

But this provision governs the Board, not the FRBs—it states that the Board’s

funding (i.e., for its budget and expenses), which it receives from the FRBs, shall

not be treated as appropriated money. It says nothing about the FCA at all, let

alone whether the government “provides” within the meaning of the FCA the

money requested or demanded by borrowers from the Fed’s emergency lending

facilities. Moreover, section 244 is plainly concerned with insulating the Board

from statutory restrictions governing appropriations, not from insulating those

      21Defendants contend that “[c]ourts applying the FCA have consistently
required . . . economic loss to . . . the United States for a claim to exist.” Def. Br. at
49. As explained above, accepting the complaint’s allegations as true, the
economic loss to the United States here is apparent.

                                            40
who defraud the FRBs from the remedies imposed by the FCA. See id. (providing

that the Board’s “expenses shall be governed solely by the provisions of this Act,

specific amendments thereof, and rules and regulations of the Board not

inconsistent therewith”).

      Nor is it clear why Congress would wish to exclude the FRBs from the

protections of the FCA. It seems highly implausible that Congress would intend

the FCA to cover claims made to private contractors where the money is “to

advance a Government program or interest” and where the government

provides or reimburses the money, but not to cover claims made to

governmental instrumentalities operating under direct supervision of a

government agency where the disbursement itself is part of a government

program and where the money is created ex nihilo pursuant to congressional

authority. Relators allege, inter alia, that “Wachovia . . . committed fraud against

the United States to secure critical lifelines to keep it afloat, materially and

overtly lying to [the FRBs] just to save its skin from an imminent insolvency that

was brought about by its own criminal recklessness.” Joint App’x at 59 (Compl. ¶

69). If true, the FCA is able to remedy this fraud. Accordingly, we disagree with

                                           41
the district court that fraudulent loan requests made to the FRBs do not qualify

as claims under § 3729(b)(2)(A)(ii)(I).22

                                    CONCLUSION

      “Few issues in the history of this nation have been as thoroughly

considered and debated as central banking and the regulation of the money

supply.” Melcher, 644 F. Supp. at 524. “The current system . . . represents an

exquisitely balanced approach to an extremely difficult problem.” Id. Our

decision today considers that balance only in the narrow context of the FCA and

our analysis may not be relevant to questions involving the status of the FRBs in

      22 The district court concluded that relators’ case could not proceed under
subsection (ii) because “Relators would have to allege that the Government
either provided [a] portion of the money loaned to defendants, or reimbursed
FRBs for making the loans.” According to the district court, “[t]hey can do
neither.” Bishop IV, 2018 WL 2172662, at *9. Defendants reiterate this point on
appeal. Def. Br. at 51 (“Appellants never allege in the Complaint, nor do they
argue in their Brief, that Government money was used to fund the Advances or
to fund FRBs generally.”). But relators do allege that the government provided
the money. See Joint App’x at 137 (Compl. ¶ 241) (“the United States provided
significant funding…to the Defendants, amounting to at least tens of billions of
dollars”); see also id. at 26 (Compl. ¶ 1) (alleging that defendants perpetrated
[fraud] “on…the [FRBNY], the [FRBR] and/or one or more other [FRBs]. . .
agencies of the United States, agents, fiscal agents and/or depositories of the
United States and recipients of monies spent on the United States’ behalf and to
advance U.S. government . . . programs or interests”).

                                            42
other contexts. Because we conclude that, for the reasons stated above, in the

context of the Fed’s emergency lending facilities the FCA applies to this alleged

fraud involving the FRBs, the judgment of the district court is VACATED, and

the case is REMANDED for further proceedings consistent with this opinion.

                                        43