We are reaching the end of a decade since mortgage fraud hit its peak in 2007. However, the latest settlement by IberiaBank suggests that at least one lender continued aspects of mortgage fraud against the Federal Housing Administration (FHA) well after becoming informed of their wrongdoing.
It’s time to examine the False Claims Act recoveries for the first half of the U.S. Government’s fiscal year 2015 since the calendar reads April. So far, the U.S. has recovered more than $1.2 billion under the federal False Claims Act, according to Taxpayers Against Fraud. That is down by more than 50% over last year but not a particularly big disappointment given the way last year started for the Department of Justice. It would have been hard to keep up the pace set by the Johnson & Johnson, JPMorgan and Suntrust settlements last year.
This year’s leading settlements under the anti-fraud law so far are DaVita ($389 million) in October and Supreme Foodservice GmbH ($146 million in civil lawsuits and $288.36 million in the criminal case) in December, and Metlife ($123.5 million) in February.
DaVita agreed to pay $350 million to resolve the allegations it paid kickbacks to induce referrals of dialysis patients. DaVita reportedly offered lucrative partnerships to physicians with patient populations suffering renal disease to induce referrals to their dialysis clinics. It also agreed to a civil forfeiture of $39 million for two joint ventures in Denver, Colorado. The whistleblower in the case reportedly received $65 million plus interest.
After DaVita, there’s been a handful of settlements for amounts in the $25 to $75 million range. Violations of the Stark Law and the Anti-Kickback Statute still seem to be key areas where health care companies are at risk of violating the law.
In descending order, settlements under the False Claims Act by health care companies include Community Health Systems ($75 million), OtisMed/Stryker ($41 million), Daiichi Sankyo ($39 million), Extendicare ($38 million), Dignity Health ($37 million), Organon ($34 million) and CareAll ($25 million).
There’s been a massive drop in the recoveries coming from housing and mortgage fraud. Through this point last year, the U.S. had already reached settlements under the False Claims Act totaling more than $1 billion between Suntrust and JPMorgan. So far this year, the only significant settlement we have seen announced by the DOJ in this area under the False Claims Act was the $123.5 million settlement with MetLife.
There’s also an agreement in principle between Morgan Stanley and the DOJ to settle an investigation into the Wall Street Bank’s mortgage practices for $2.6 billion. It’s too soon to allocate any portion of this settlement to the False Claims Act, but it could be a nice bump in the total when it is announced by the DOJ.
The U.S. has had another victory in this area – it just can’t be counted as a win for the False Claims Act. The federal government’s complaint that led to the $1.375 billion settlement with Standard & Poor’s, half of which went to the Federal Government, was brought under FIRREA. FIRREA was easily the big winner last year in the fight against fraud, eclipsing the False Claims Act for the first time ever.
The other big FIRREA case right now is the appeal between Bank of America and the Department of Justice over the $1.27 billion verdict in a whistleblower-initiated lawsuit. The False Claims Act allegations were dismissed two years ago but the case against the company under FIRREA remained. This case was specifically excluded from the massive $16 billion settlement last year and the Judge Rakoff denied a new trial in February.
The drop-off in the False Claims Act and FIRREA in this area could have been easily predicted. It was unlikely that the U.S. could repeat the $3.1 billion in federal funds it recovered under the False Claims Act or the staggering $11 billion under FIRREA. It was the first time that the DOJ used the FCA to recover more from mortgage fraud than it did from health care fraud.
The Supreme Foodservice settlement involved a payment of $288.36 million to resolve the criminal case in the Eastern District of Pennsylvania and $101 million to resolve the civil lawsuit under the False Claims Act. The company was accused of using a United Arab Emirates company it controlled to inflate the price of food and bottled water sold under the contract. The whistleblower in the case was to receive $16.16 million from the government’s settlement. A subsidiary of Supreme Group, Supreme Logistics FZE, agreed to pay $25 million to resolve allegations of false billings in food shipping contracts during Operation Enduring Freedom.
There have been a few other mid-sized settlements in government contracts. Office Depot ($68.5 million), Iron Mountain ($44.5 million) and Lockheed Martin Integrated Systems ($27.5 million) jumped off the list. Office Depot and Iron Mountain were both best price violations. LMIS involved over-billing for under qualified workers.
Adding up the rewards from some of the bigger cases to settle this year, relators have earned more than $160 million this year from bringing qui tam lawsuits. In FY2014, whistleblowers were paid $435 million by the Department of Justice. The FY 2015 awards so far include announced payments for:
DaVita: $65 million.
Office Depot: $23 million.
Community Health: 18.67 million.
Supreme Foodservice: $16.16 million.
Iron Mountain: $8.1 million.
OtisMed/Stryker: $7 million.
Dignity Health: $6.25 million.
Daiichi Sankyo: $6.1 million.
CareAll: $3.9 million
For additional information, please contact one of our Philadelphia False Claims Act attorneys.
Just weeks after being found liable for violations of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (“FIRREA”), Bank of America, Corp. (“BofA”) is again facing allegations of mortgage related fraud. This time the lawsuit asserts that BofA defrauded the federal government and multitudes of borrowers by gaming the Home Affordable Refinance Program (“HARP”). The Federal Housing Finance Agency (“FHFA”) established HARP in March of 2009 to help alleviate the troubles created by plummeting property values after the burst of the U.S. housing bubble in 2006.
Specifically, HARP facilitates refinancing for underwater homeowners, who are otherwise current on their payments, by offering favorable interest rates and refinancing without mortgage insurance. In order to participate in HARP, an underwater homeowner’s mortgage must be owned or guaranteed by federally-backed Fannie Mae or Freddie Mac. To further encourage refinancing, the FHFA substantially reduced loan level price adjustments (“LLPAs”), common risk-based fees, for HARP loans purchased by Fannie and Freddie. The removal of LLPAs was designed as a cost reduction for lenders, who would in turn pass the savings on to borrowers.
However, one such homeowner, John J. Platz, alleges in his qui tam complaint filed under the False Claims Act that BofA profited illegally by first, pushing the FHFA to drop LLPAs, but then failing to pass along savings to consumers. Platz contends that this violated the terms and conditions of payment for lenders under HARP and resulted in the submission of thousands of false claims to the federal government.
Young Law Group is a nationwide leader in whistleblower representation and has successfully represented numerous clients in some of the nation’s largest qui tam cases for over a decade. For a free confidential consultation, please call Eric L. Young, Esquire at (800) 590-4116 or complete the online form here.
The U.S. District Court for the Southern District of New York (Manhattan) unsealed a whistleblower lawsuit against financial services firm JPMorgan this week. The qui tam lawsuit, originally filed in January 2013 by Keith Edwards of Louisiana, accused JPMorgan of violations of the False Claim Act for mortgage fraud. In the settlement, JPMorgan acknowledged its wrongdoing and agreed to pay $614 million to the federal government.
Since 2002, JPMorgan originated thousands of residential home loans insured and guaranteed by the Federal Housing Administration and Department of Veterans Affairs that were not actually eligible based on the underwriting requirements of the relevant agency. JPMorgan falsely certified to the agencies that the loans met the required underwriting standard. When the loans defaulted, the government lost millions. An internal audit by JPMorgan revealed more than 500 loans improperly submitted to the FHA and VA for insurance, but JPMorgan did not notify the government about its discovery.
The percentage of money the government will pay to Edwards as a whistleblower reward has not yet been set. The False Claims Act provides for an award to the whistleblower of between 15 and 30 percent of the amount recovered by the government. Because the Justice Department intervened in the case, the relator is entitled to 15 to 25 percent. Edwards was employed by JPMorgan in Louisiana at the banks government insuring unit when he discovered the fraud.
The lawsuit is one of eight civil fraud cases brought by the Office of the U.S. Attorney for the Southern District of New York regarding improper residential mortgage lending by the nation’s banks. Citigroup, Deutsche Bank and Flagstar Bancorp have already agreed to pay settlements for their misconduct.
2014 has already been a busy year for fraud settlements by our nation’s banks. JPMorgan agreed to pay $2 billion to settle charges related to its failure to report the Ponzi scheme conducted by Bernard L. Madoff to the government. Bank of America recently settled with a group of mortgage securities investors for $8.5 billion. And Morgan Stanley agreed to pay $1.25 billion to the Federal Housing Finance Agency for its sale of mortgage securities to Fannie Mae and Freddie Mac.
McEldrew Young is a nationwide leader in the False Claims Act and has successfully represented clients in some of the nation’s largest qui tam cases for over a decade. For a free confidential consultation, please call Eric L. Young, Esquire at (800) 590-4116 or complete the online form here.
Edward O’Donnell, the Countrywide whistleblower who tipped the government to the ‘Hustle’ program at the mortgage company, will receive a $58.6 million payout as a result of the historic $16.65 billion settlement between the U.S. Government and Bank of America in August.
The majority of the award, $57 million, is to be paid out under a False Claims Act lawsuit filed by O’Donnell in June. The June lawsuit was the second he filed against Bank of America, the successor to Countrywide. O’Donnell’s first lawsuit, filed in 2010, resulted in a $1.27 billion award now under appeal. However, his potential reward from the case is limited because the judge dismissed the False Claims Act allegations back in 2013. The jury trial proceeded on the allegations that Countrywide violated the Financial Institutions Reform, Recovery and Enforcement Act (FIRREA).
There is still the potential for at least two more awards since the Justice Department announced in August that the settlement resolved three qui tam lawsuits.
Overshadowed by the large reward paid under the False Claims Act may be the first FIRREA whistleblower award. Although I haven’t seen a news report connect the dots yet, the additional $1.6 million to be paid to O’Donnell is the exact amount of the maximum reward under the law that has become the U.S. Government’s leading law against mortgage fraud. The BofA settlement included a $5 billion penalty under FIRREA, the largest of its kind so far.
There have been a few other large settlements under FIRREA this year but this is the first announcement of an award that I have seen. Earlier this year, I was unable to find a prior award announcement. The law has been on the books for more than 20 years, so it seems likely that there have been prior payments. But the law’s long history of disuse and recent revival suggest that even if there have been awards in the past, the number of people who have received them is still small.
In September, U.S. Attorney General Eric Holder proposed a modification of the payout calculation under the popular financial fraud law. He suggested that the amount should instead be modeled after the False Claims Act and not limited to a maximum of $1.6 million.
Fifth Third Bancorp has settled DOJ charges that it failed to report 1,400 defective mortgages for $85 million. It was discovered that these loans originated between 2003 and 2013 were not eligible for FHA insurance during post-closing quality reviews but the company did not report the problems to the government until 2012.
The lawsuit was initiated by a whistleblower complaint under the False Claims Act before the company voluntarily self-reported. The whistleblower was represented by a local Philadelphia whistleblower law firm – congratulations to them and their client on good work.
JPMorgan, Citi, Bank of America and U.S. Bancorp have all settled mortgage fraud lawsuits alleging they failed to follow the FHA’s underwriting standards in insured loans.
The most high profile lawsuit this year has been Quicken Loans, which filed a declaratory judgment action against the Federal Government in the Eastern District of Michigan a few days before the Department of Justice filed its complaint in the District of Columbia. The courts are now considering whether to dismiss or transfer the lawsuits.
A few banks have settled investigations into their conduct this year but non have reached the same lofty penalties as were announced last year, led by the $16.65 billion dollar Bank of America settlement.
We also saw the Department of Justice once again evaluate whether charges should be filed against any bank executives for their role in the financial crisis stemming from their mortgage lending and mortgage-backed securities trading. It is unclear whether they will take action in light of the criticism about their lack of prosecutions against executives but the recent Yates memo has indicated that the DOJ will be looking at bringing actions against the responsible individuals in current and future cases.
Whistleblowers have been a key ingredient in helping the government discover mortgage fraud. They are eligible for rewards under both the False Claims Act and FIRREA if they follow the appropriate procedures for the whistleblower laws.
The Wall Street Journal has reported that Standard & Poor’s, a unit of McGraw Hill Financial Inc., could settle SEC charges of securities fraud related to its rating of commercial real estate in 2011 this week. Previous estimates have put a settlement of these charges, unrelated to the subprime rating lawsuit by the DOJ, at around $60 million.
This report comes on the heels of Bloomberg and Reuters reports that Standard & Poor’s will settle for more than $1 billion the DOJ lawsuit brought under the False Claims Act for misleading the United States Government about its mortgage-backed securities ratings.
The S&P lawsuit is one of four largest that remains as a result of the financial crisis. The United States also has the FHFA lawsuit against the Royal Bank of Scotland settles the FHFA lawsuit and Morgan Stanley is under investigation for its mortgage-backed bond practices in 2015. All three could easily settle in 2015 to avoid a cloud over their heads while their competitors move on from the mortgage crisis. large settlements in this arena that have dominated the headlines could be over by the end of the year.
There’s also the $10 billion lawsuit Credit Suisse faces from New York. In an interview with Reuters, New York Attorney General Eric Schneiderman indicated that there will be more lawsuits filed against banks for selling mortgage-backed securities. So it still may be too early to call the end to cases of mortgage fraud, but not too early to start speculating about the future.
If the U.S. no longer spends significant resources targeting mortgage fraud, what will be the next area of corporate misconduct on the government’s radar?
If the government looks overseas, it should find plenty of potential cases.
Bribery is one area that is prime for additional prosecution. The record settlement with Alstom for violations of the Foreign Corrupt Practices Act (FCPA) in December could be the beginning of greater prosecutions in this area as the government frees resources from the mortgage prosecutions.
The FBI has already announced that it will triple the number of agents investigating foreign corruption, which includes both FCPA violations and kleptocracy. FBI agents play an important role in the investigation of bribery charges brought by the SEC and DOJ under the FCPA.
There should be no shortage of cases for them to investigate. China has been hunting down corruption within its country and whistleblowers are bringing cases to the SEC in record numbers. In FY2014, whistleblowers classified 159 tips as related to FCPA violations. Since starting the whistleblower program, the SEC has received more than 400 tips in this area.
Another area that took a big leap forward last year was the prosecution of anti-money laundering and economic sanctions violations. With the BNP Paribas settlement reaching nearly $9 billion last summer, this could become a hot area as government attorneys look for other financial institutions involved in similar banking deals.
If the government looks domestically, the auto industry is another potential target. Delayed recalls by car manufacturers have put millions of families at risk as unsafe vehicles have been driven unknowingly by families. There are several bills in Congress to strengthen regulation of motor vehicles and the passage of the Thune-Nelson bill would add whistleblower rewards to this area.
The high profile cases of GM and Takata last year might just be the tip of the iceberg. After a record 60 million cars were recalled last year, more than twice the previous record, the NHTSA is already predicting that we will see a new record set in 2015 as the government pushes manufacturers for more aggressive recalls. The Fiscal Times declared 2015 the year of the recall already.
Will mortgage cases stay on the government’s radar? Will the government focus elsewhere? Let us know your thoughts in the comments.
It has been quite a few months since we have heard anything big about the continuing pursuit of mortgage fraud lawsuits. However, that silence changed last week with the announcement on Friday of a $1.2 billion settlement by Wells Fargo. It was followed today by a $5 billion settlement agreement with Goldman Sachs. The Justice Department settlements concluded enforcement actions under the Financial Institutions Reform, Recovery and Enforcement Act of 1989 (FIRREA) and other legal theories. It also puts the U.S. Government and financial industry one step closer to putting the financial crisis created by bad mortgages behind it.
Goldman Sachs announced a tentative agreement yesterday with the Department of Justice, two state governments and a few other entities concerning federal and state investigations into the investment bank’s mortgage-backed securities practices prior to the financial crisis. Goldman is going to pay a $2.4 billion civil monetary penalty as well as provide consumer relieve including $875 million in cash and $1.8 billion in other consumer relief such as mortgage principal forgiveness, foreclosure prevention and support for debt restructuring.
Record penalties under FIRREA helped make financial fraud the largest source of money collected by the Department of Justice through enforcement efforts in Fiscal Year 2014. The DOJ statistics released today revealed that agency led enforcement actions and negotiated civil settlements resulted in collections of more than $24 billion during the fiscal year ending in September.
FIRREA had fallen into disuse until prosecutors began bringing enforcement actions against banks for conduct surrounding the financial crisis of 2008. Now, it has become the nation’s leading tool against mortgage fraud. It resulted in settlement amounts of $2 billion (JPMorgan), $4 billion (Citigroup) and $5 billion (Bank of America) over the past year as banks sought to put their misconduct involving residential mortgage backed securities behind them. JPMorgan and Citigroup were cited by the DOJ as paying significant sums in 2014, with Bank of America unnamed. Because the BofA settlement happened toward the end of the fiscal year, it may not have paid the money to the U.S. Government yet.
FIRREA’s increasing importance also led Attorney General Eric Holder to call for an increase in the law’s incentives for whistleblowers just days before he announced he was stepping down. Rewards are currently capped at a maximum of $1.6 million. The False Claims Act, SEC and IRS programs are all uncapped, with payments potentially reaching over $100 million on large cases.
In the press release, the Justice Department credited whistleblowers under the False Claims Act for bringing many of the cases leading to large civil collections. Whistleblowers were involved in a number of large cases reaching a resolution in 2014, including investigations into Bank of America and JPMorgan Chase in the financial arena and Johnson & Johnson in health care.
The DOJ press release added another financial crime to the list of penalties paid by financial institutions: LIBOR manipulation. UBS Securities Japan and RBS Securities Japan paid large amounts to end investigations into their manipulation of the London Interbank Offered Rate.
The $24 billion number includes money paid during FY2014 even if the settlement or enforcement action happened in a preceding year. It excludes settlements agreed to in 2014 but not paid during the government’s fiscal year. The DOJ received $13.7 billion while its civil and criminal enforcement efforts helped other federal agencies, states and additional parties receive another $11 billion. It’s unclear to us how much, if any, overlaps with the $7 billion collected by the CFTC and SEC.
The amount was more than three times the $8.1 billion collected in 2013. The ongoing antitrust investigation into the auto parts industry, environmental cleanups of pollution and criminal penalties for violations of the FCPA also led to significant collections. Significant antitrust and environmental cases also led to more than $1 billion in 2013.
Last year, health care fraud topped the list of collections with large fines paid by Abbott and Amgen. It’s absence from the list this year is noticeable because of the large amounts settlements gathered from this area in the past ten years for violations of the False Claims Act.
For additional information about today’s DOJ announcement, here is the press release.