In late May, a federal appeals court overturned a $1.27 billion penalty and a jury verdict against Bank of America [1] which found the bank liable of mortgage fraud. But the U.S. government, which brought the case against Bank of America, is not giving up just yet.
According to a report from Reuters [2], Manhattan U.S. Attorney Preet Bharara’s office asked a three-judge panel on the 2nd U.S. Circuit Court of Appeals in New York to grant a new trial in the case.
In their brief filed with the 2nd Circuit Court, Bharara’s office argued that the May decision that overturned the verdict “overlooked a wealth of evidence” which established that Bank of America committed fraud through Countrywide Loans’ High Speed Swim Lane (HSSL, or “Hustle”) program. Bank of America acquired Countrywide for $4 billion in 2008.
Bharara’s brief filed with the 2nd Circuit Court stated that there was an “adequate basis” for the jury’s verdict that originally found Bank of America liable of fraud.
The government sued Bank of America in August 2013 as a result of a whistleblower complaint from former Countrywide executive Edward O’Donnell, who collected $57 million for his whistleblower role. The suit alleged that the Hustle program emphasized speed over quality of the loans sold, and staff members were rewarded according to sales volume.
Late in 2013, a jury found Countrywide liable for selling toxic mortgage-backed securities to Fannie Mae and Freddie Mac through the Hustle program. In July 2014, a judge ordered Bank of America to pay a $1.27 billion civil penalty and also fined former Countrywide executive Rebecca Mairone $1 million for her alleged role.
From the time the verdict and the penalty were issued, Bank of America fought to have both dismissed, claiming not only that the Hustle program ended prior the bank's 2008 acquisition of Countrywide, but that the government's accusations in the case amounted only to breach of contract and not fraud. On May 23, 2016, the 2nd Circuit Court of Appeals overturned both the jury’s verdict and the judge’s imposed penalty as well as the fine against Mairone.
Bank of America had no comment on Friday on Bharara’s office asking for a new trial; in May when the Hustle verdict was dismissed, a bank spokesperson said, “We are pleased with the appellate court’s decision.”
Mairone told MReport in May about the appellate court's dismissal of the penalties, “I think it was a fair decision, and it was a long time coming. I'm relieved to finally be vindicated from the whole fraud issue. I couldn't be happier. It took a long time to get to this point, but you have to keep fighting for the right thing.”
As a side note, O’Donnell was permitted to keep the $57 million whistleblower reward because of a second lawsuit he filed in June 2014 against a separate division of Countrywide for the sales of toxic mortgage loans to the GSEs. Bank of America agreed to pay $350 million to settle that claim as part of a much larger settlement—a then-record $16.65 billion in August 2014.