Government Settles $158 Million Mortgage Fraud Suit With Citigroup

This past week, Citigroup Inc. came to a $158 million settlement with the Justice Department over the Mortgage division’s fraudulent loan origination and lending practices. Thanks to the work of a courageous whistleblower, the government was able to hold Citigroup accountable. The settlement here comes on the heels of last week’s Justice Department settlement with Bank of America over its practices relating to underwriting and originating loans. It appears that Citigroup will also be involved in the country-wide settlement between the government and the nation’s largest mortgage lenders. This 40-state settlement is worth $25 billion, $2.2 billion of which will come from Citigroup. Because it falsely portrayed mortgages as meeting government insurance standards, which falls under the False Claims Act, Citigroup is finally being held accountable to the American public.

Credit is due to whistleblower Sherry Hunt, a quality-assurance worker at CitiMortgage, for providing information to the government about her company’s fraudulent activities. Ms. Hunt was able to assist the Justice Department due to the reforms put in place under the Dodd-Frank Wall Street Reform Act. This legislation created a special whistleblower program within the Securities and Exchange Commission (SEC) for purposes of cracking down on broken security laws, practices that cheat investors, and other illegal practices that go beyond government fraud which is described in the False Claims Act. This program has proven to be a boon to the government and to the American public, because it has opened the door to recovery of revenue that was unfairly taken by companies who chose to ignore the law. In the past, many of these companies were able to hide their fraud and if someone tried to expose their actions, the companies would retaliate against that person. Now, under Dodd-Frank, these whistleblowers come under the protection of the SEC Whistleblower Office. The program is not without its flaws and whistleblowers continue to suffer from various types of retaliatory actions, but it is a step in the right direction.

The American people have waited too long for the government to hold accountable those responsible for the recession. Millions have lost their homes, have gone into bankruptcy, and have lost their jobs. Citigroup contributed to this problem by ignoring the standards set for choosing borrowers and using the government’s insurance to back up their unnecessary risks. Action was needed in order to show Citigroup they could not risk the American taxpayers’ money, and that there would be consequences to knowingly defrauding the government. The creation of the SEC whistleblower program has been an important by-product of the recession, because now the government can effectively fight back.SEC Chairman Mary Schapiro has even said that the program has brought in thousands of tips from potential whistleblowers that have helped their investigate team prosecute offenders more efficiently. Hopefully, the recent actions against these mortgage giants will not only hold accountable those responsible for defrauding the government, but also act as a warning to other would-be perpetrators of mortgage fraud.

See Also:

http://www.bloomberg.com/news/2012-02-15/citigroup-mortgage-division-agrees-to-pay-158-3-million-in-hud-settlement.html

http://www.businessweek.com/finance/more-financial-whistleblowing-is-on-the-way-02162012.html