Since the 2008 mortgage meltdown, whistleblowers have been making millions. A record number of whistleblowers have come forward and the courts have awarded their efforts:
Keith Edwards (JPMorgan Chase) $63,900,000.00
Sherry Hunt (Citigroup) $31,000,000
Lynn Szymoniak (Wells Fargo) $18,000,000.00
And of course, who can forget the record $104,000,000.00 whistleblower award paid to former UBS banker Bradley Birkenfeld
The Justice Department is reportedly still working on a couple more high profile cases – one is our case $2.4 billion whistleblower case against Allied Home Mortgage – but the biggest cases are finally ending. That gives prosecutors and federal regulators plenty of time to begin taking on the second and third tier banks, mortgage companies and other lenders.
While everyone would like to receive a whistleblower reward check for $100 million, those cases are very few and far between. There are still hundreds of cases where million dollar plus rewards are possible, however.
To better understand how these awards are made, some brief history is necessary. The grand daddy of all whistleblower laws is the federal False Claims Act. Dating back to the Civil War, that law allows whistleblowers with inside information about a fraud involving a federal program or program backed by the federal government to receive an award.
Typically, the award is 20% of whatever the government collects. Because the government can seek triple damages, whistle bower awards can quickly reach the million dollar mark.
Most residential mortgages are either insured by the government (FHA and VA) or indirectly backed through Fannie Mae or Freddie Mac. Defraud one of those programs and a False Claims Act claim probably exists.
Shoddy lending, underwriting and quality processes all lend themselves to bad loans. A high default rate (high percentage of bad loans) by itself is not enough to base a claim, but throw in a HUD rule violation and a false claims act case is possible.
Want some examples?
* Net branch violations – HUD insists that lenders have skin in the game. Mortgage companies that create illegal net branches and make the managers responsible for their own overhead are common examples. (The largest of the financial services whistleblower cases is a net branch case; our $2.4 billion case with HUD against Allied.)
* Poor quality control plans.
* Home Mortgage Disclosure Act violations.
* False income and asset verifications or missing / forged paperwork.
* Poor performance by mortgage servicing companies.
* Loan officer commission programs that reward or compensate workers based on loan terms.
The one negative about the False Claims Act is its relatively short statute of limitations. That means it may be too late to file certain claims against lenders for pre-meltdown conduct. There is still hope for these older violations, however. A second federal law, the Financial Institutions Reform, Recovery and Enforcement Act (FIRREA), has a 10 year statute of limitations but whistleblower awards are capped at $1.6 million.
This week the Wall Street Journal reported that the feds are looking into Fifth Third Bancorp, Sun Trust, US Bank, Capital One and Regions. Earlier this year, we completed a case against Evolve Bank and Trust, a Tennessee regional lender.
What does all this mean? There are still many opportunities to step forward and help put an end to corporate greed and dishonesty. If that isn’t enough of a reason, whistleblowers can also receive a sizable cash payment for their efforts.
Whether you worked for a second or third tier bank (or worked at one of the “too big to fail” behemoth banks, give us a call if you have inside information about fraud to a government back or funded program.
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