Bank of America is back in the headlines, this time after being ordered to pay $1.27 billion for its both its sins and that of Countrywide Financial Corp. In October of 2012, we first reported on the massive false claims act case originally filed against the bank by a whistleblower.
Today’s headlines talk about the massive penalties assessed against Bank of America but lets not forget how this case started. Using a Civil War era law called the federal False Claims Act, Edward O’Donnell, a former Countrywide Executive Vice President in charge of mortgage underwriting, filed the suit in February 2012. It remained under seal until the Justice Department intervened and took over the suit in October of that year.
In October of 2013, a Manhattan jury agreed with prosecutors and found the bank liable for violations of both the False Claims Act and FIRREA (the Financial Institutions Reform Recovery and Enforcement Act). This week U.S. District Judge Jed Rakoff ordered the bank to pay $1.27 billion. A former Countrywide executive, Rebecca Mairone, was ordered to pay $1 million for her role in the civil fraud. It is unclear if the bank will pay her fines and penalties as they have done for some other executives.
O’Donnell’s case revolved around Countrywide’s “Hustle” program also known as the High Speed Swim Lane. The program referred to a fast-track mortgage approval process that overlooked many of the underwriting safeguards required by federal law. As a result of bank’s actions, tens of millions of dollars worth of toxic loans were sold to HUD, Fannie Mae and Freddie Mac. Ultimately taxpayers paid the price for these toxic mortgages.
This case is the only large civil fraud case against a big bank to go to trial. All of the others have quickly settled. And judging by the jury’s reaction, future cases will likely settle too. There isn’t a juror in the country who hasn’t heard a horror story from a friend or family member hurt by the mortgage crisis and subsequent blow to the economy. And behind many of those stories is a “too big to fail” bank.
The cases from the 2007 – 2008 financial crisis are winding down. At least with respect to the bigger banks. Prosecutors have signaled an interest in addressing some of the smaller and mid tier banks. Some statutes, such as FIRREA, give prosecutors 10 years to file complaints meaning that banks are still not out of the woods for their pre-crash bad behavior.
Many of the largest cases against the banking industry have been brought by whistleblowers. Those folks range from former Executive Vice Presidents like Mr. O’Donnell to Sherri Hunt, a former quality control supervisor at Citi Mortgage. (Sherri received a $31 million whistleblower award for her information.)
The False Claims Act and FIRREA allow whistleblowers to earn a percentage of whatever the government collects from wrongdoers. In O’Donnell’s case, he could receive up to $240,000,000.00 for coming forward.
There is a message in all this. Banks and other companies that defraud taxpayers should be very, very careful. Most whistleblowers are not motivated by money. They come forward after being repeatedly ignored – or worse, suffer retaliation. Whether motivated by civic duty or not, the record fines and whistleblower awards mean that those committing fraud should be very worried.
We believe that whistleblowers are the new American heroes. They stand up to fraud, dishonesty and corporate greed while others sit back silently, afraid to rock the boat. We are proud to represent whistleblowers and welcome the opportunity to do so.
Whistleblower photo courtesy of Dave Winer – scriptingnews
Post by Brian Mahany