* Department of Justice alerts judge to favorable ruling
* Ruling endorses key weapon in mortgage fraud cases
* U.S. using FIRREA in pending cases against BofA, Wells Fargo
By Bernard Vaughan
NEW YORK, April 25 (Reuters) - The U.S. Justice Department has promptly capitalized on a court victory to bolster a case before another federal judge, citing a ruling on Wednesday that endorsed the agency's use of a little known financial fraud law to prosecute bank actions during the financial crisis.
In a letter made public on Thursday, the agency told U.S. District Judge Jesse Furman on Wednesday that the ruling is one reason why its mortgage-fraud case against Wells Fargo & Co should not be dismissed.
U.S. District Judge Lewis Kaplan made that ruling in a lawsuit against Bank of New York Mellon, which the Justice Department accuses of overcharging clients for trading currencies.
The government's cases against Wells Fargo and BNY Mellon and a third lawsuit against Bank of America Corp rely in part on the Financial Institutional Reform, Recovery and Enforcement Act of 1989 (FIRREA).
The law addressed fraud during the savings and loan crisis of the 1980s and 1990s, in which hundreds of U.S. thrifts failed and prompted a multibillion dollar government bailout.
In recent years, U.S. authorities have turned to the law to pursue cases arising from the latest financial crisis because it carries a low burden of proof while providing broad investigative powers and a long statute of limitations.
In an 81-page ruling, Kaplan in Manhattan on Wednesday ruled that the Justice Department can proceed with the lawsuit against BNY Mellon. The judge said it was "entirely consistent with the text and purposes of the statute to hold the institution liable for its conduct."
Filed in October, the lawsuit against Wells Fargo accused the bank of certifying thousands of mortgage loans for Federal Housing Administration insurance despite knowing that it hadn't adequately assessed borrowers' ability to make payments.
"In the course of his ruling, Judge Kaplan rejected Bank of New York Mellon's argument-the same argument asserted by Wells Fargo Bank in this litigation," lawyers with the office of Manhattan U.S. Attorney Preet Bharara wrote in the letter.
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