by Brian Mahany
Several time we have posted stories about the many fraud cases against big banks. Our $2.4 billion case against Allied Home Mortgage was started by a whistleblower. Last month’s case against Bank of America was also brought by a whistleblower. Why do folks come forward and file these cases? Good question.
For many, its simply the right thing to do. Take the example of Sherry Hunt of CitiMortgage. Sherry was a quality assurance manager for Citi. Her job was to insure that mortgages met minimum quality standards. Because many of Citi’s mortgages were insured by the government, HUD regulations required certain standards before mortgages were eligible for insurance. She said Citi ignored her warnings that many underwriters within the mortgage giant were approving what was essentially junk; mortgages without proper appraisals or earnings documentation.
After her repeated warnings were ignored, Sherry became a whistleblower and filed a false claims act case with the help of an attorney. Ultimately, the government agreed with her and said that taxpayers – you and I – paid tens of millions in claims based on Citi’s bad mortgages.
Whistleblowers often face a rough time once their employer find out who “blew the whistle.” In an IRS case, the chances of avoiding discovery are pretty good but in SEC and False Claims Act cases, we tell clients that their identities will probably become known.
For that reason, the government allows whistleblowers to keep a portion of what the government collects. In Sherry Hunt’s case, that added up to $158 million. Sherry’s award? Over $31,000,000.00! Not a bad payday.
Sherry isn’t alone. A recent IRS whistleblower received $104 million.
The recent Bank of America case signals new opportunities for whistleblowers in mortgage fraud cases. The false claims act is only available when taxpayers suffer a loss. In the CitiMortgage case, the FHA insured many of Citi’s mortgages. Because many of the mortgages they wrote were essentially junk, taxpayers were left footing the bill when the borrowers defaulted. Most mortgages, however, were not insured directly by the government but were insured by Freddie Mac and Fannie Mae, both private companies.
Until September of 2008, both companies remained private. Now, both companies are run with government oversight. Congress bailed them out in order to maintain confidence in the housing market. The loans that were insured, however, predate the takeover.
Bank of America isn’t taking this fight sitting down. Even though Fannie and Freddie’s losses are being paid with tax dollars, can the government use the false claims act when the mortgages were originally insured by a private company? We say yes. Although BOA has quickly settled past claims, they appear to be gearing up for a fight. What the court will do remains to be seen but we believe the government will ultimately win.
The Bank of America case probably will convince many more whistleblowers to come forward. Fannie Mae and Freddie Mac went under and required billions in bailout monies because many of the mortgages they insured were garbage. We hope that the government’s willingness to extend the false claims act to Fannie and Freddie will encourage others to come forward.
If you have information about lending, mortgage or banking practices that result in waste or fraud, give us a call. Our firm represents the whistleblower in the largest case pending against the financial industry. Obviously, not every case will be measured in the billions but there are certainly hundreds of banking sector employees and auditors with inside knowledge of fraud. We can help you do the right thing for society, protect taxpayers and earn a large cash award for your efforts.
For more information, contact attorney Brian Mahany at or by direct dial at . All inquiries are kept in strict confidence. Mahany & Ertl is a proud supporter of whistle watch.org and has helped many whistleblowers come forward and fight fraud.
Mahany & Ertl – America’s Fraud Lawyers. Offices in Milwaukee, Wisconsin; Detroit, Michigan; Portland, Maine; Minneapolis, Minnesota and coming soon, San Francisco, California. Services available in many jurisdictions.