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BofA Sued by U.S. for $1 Billion Over Alleged Mortgage Fraud


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The action isn't Bank of America's first False Claims Act suit. In February, Bank of America agreed to a $1 billion settlement of False Claims Act fraud allegations tied to Federal Housing Administration-backed loans brought by the Eastern District of New York. The bank settled without admitting wrongdoing. Three other large banks have agreed to pay a total of more than $490 million in similar cases, each accepting responsibility for "certain conduct."



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Fannie, Freddie and the False Claims Act



In 2009, Congress passed the Fraud Enforcement and Recovery Act, known as FERA. The law broadened the False Claims Act and wiped out a court decision that said a person could be held liable only if they intended for a false statement to sway the government to pay a claim. It also eliminated case law that said the FCA could reach only false statements or false claims to the government.

Now, the FCA can be applied to any request for money, whether or not the U.S. has title to it, if the money is to be spent on the government’s behalf or to advance a government interest and involves federal funds.


“The law is much more broadly applicable now” to the conduct alleged in the Bank of America lawsuit, said Laurence Freedman, a partner at Patton Boggs LLP who defends companies in FCA cases.


But there’s a catch. The complaint focuses on events beginning in 2007, and FERA can’t be applied retroactively, with one exception.

The government alleges Countrywide, hurting from a loss of revenue, eliminated checks on loan quality in order to sell loans to Fannie and Freddie at a faster clip. We know what happened next. In 2008, Fannie and Freddie succumbed to the weight of millions of failing mortgages and had to be bailed out by the government.


“It’s much more questionable whether the government’s legal theory holds for pre-FERA claims,” Mr. Freedman said.


“There has to be government skin in the game when the act of fraud is occurring,” said Ben Vernia, a lawyer who represents both defendants and whistleblowers in False Claims Act cases.


Mr. Vernia said that Bank of America could argue that “if we violated the rules, it wasn’t in connection with what we understood to be a government program.”

“It’s not a pretty argument,” Mr. Vernia added, but it could be effective.

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