by Brian Mahany
Bank of America is back in the news. And once again, its not good news for America’s “Too Big To Fail, Too Big To Jail” banking giant. Last week, BoA asked a federal judge to toss a billion dollar false claims suit against it. The suit, brought by former Countrywide Senior V.P. Edward O’Donnell and later adopted by the U.S. Department of Justice, accuses the lender of writing shaky loans in disregard of loan guidelines. (For more on that story, click here.)
O’Donnell claims that Countrywide started a program dubbed the High Speed Swim Lane or HSSL (“Hustle”). The government said the Hustle was a nothing more than a program that fast tracked loans at the expense of accuracy and procedural safeguards. As a result, hundreds of millions of bad loans were written; loans that ultimately defaulted.
That’s where things get tricky. Loans insured directly by the government – FHA loans for example – are clearly covered by the false claims act. Fannie Mae and Freddie Mac, however, insure most mortgages. The Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac) are government-sponsored enterprises. Private companies with a public purpose.
Normally, these companies are financed by premiums charged to lenders. When the housing market crashed, however, both Fannie and Freddie soon ran out of money and couldn’t pay on the guaranties. Congress then elected to shore up the market by pumping billions of tax dollars into both companies. HUD also placed both under federal conservatorship.
The federal false claims act requires that there be a loss to taxpayers. Here, the loss is indirect. Congress recognized that problem and later amended the false claims law by passage of Fraud Enforcement and Recovery Act of 2009 (FERA).
BoA hopes to avoid a trial on the merits; a trial that we believe they would surely lose. The chief witness in the government’s case is a former executive vice president of Countrywide. (Bank of America acquired Countrywide.) The bank hopes to avoid a trial by escaping liability on procedural grounds. Bank lawyers filed a massive brief claiming the government only identified a vague “overarching scheme” to defraud but failed to identify specific incidents.
Much of the debate centers on whether fraud against a private entity that receives federal funds is sufficient for a false claims case. The arguments appear disingenuous; is deliberately ignoring Freddie and Fannie’s lending standards fraud? We believe it is.
The federal false claims act allows whistleblowers with inside information to bring an action on behalf of the government. Most states also have whistleblower laws as well. Whistleblowers – called relators – receive a portion of whatever monies are collected by or on behalf of the government. In a $1 billion false claims case, that cash award could be in the hundreds of millions of dollars.
The Bank of America case is huge but by no means the largest. We represent the whistleblower in the largest false claims case against a lender, HUD’s $2.4 billion case against Allied Home Mortgage.
If you have information about fraud against the government, misuse of tax dollars or fraud against a company that receives tax dollars (such as Fannie Mae), give us a call. We are particularly interested in speaking with former Bank of America employees and auditors.
Our false claims lawyers represent whistleblowers in a wide variety of cases. Other common examples include Medicare fraud, government procurement fraud and Buy America Act violations.
Mahany & Ertl – America’s Fraud Lawyers. Offices in Milwaukee, Wisconsin; Detroit, Michigan; Minneapolis, Minnesota; Portland, Maine and San Francisco, California. Services available in many jurisdictions.
Want more information? Our Due Diligence blog has a search engine located in the upper right hand corner. For more information on specific topics, just click the fraud recovery tab or type in the name of a particular topic such as “whistleblower” or “false claims act” in the search bar. We have posted hundreds of informative articles on our site.