Founders Falls was originally known as "Smithtown", one of several colonial towns that eventually merged to become Paragon City.
Best known for its waterfront beauty, much of the original town flooded with the rise of the Red River. Surviving building were soon modified to give a scenic feel similar to Italy's Venice.
Even before the destruction of Eastgate in 2000, many upper-income residents began moving toward Founders Falls as the price of waterway condominiums rose. With the addition of Icon and the Founders Falls University, Founders Falls quickly became known as "The Home For Success".
Following the devastation of the 2002 Rikti Invasion, the decision was made to relocate many of Paragon City's judicial offices and courtrooms to Founders Falls. The decision came with much deliberation, though, as both Founders Falls and Talos Island were left relatively unscathed by the Rikti, and representatives for both zones firmly believed that they would provide ideal services for lawyers. In the end, however, money trumped security, as it was cheaper to build in Founders Falls than it was on Talos Island.
(Please see the Paragon Wiki entry for more in-game related information.)