U.S. Attorney’s Offices reach $95 million settlement in false claims case against nation’s five largest Financial Institutions

U.S. ATTORNEY’S OFFICES REACH $95 MILLION SETTLEMENT IN FALSE CLAIMS CASE AGAINST NATION’S FIVE LARGEST FINANCIAL INSTITUTIONS

CHARLOTTE, N.C. – Bank of America Corporation, Ally Financial, Inc. (formerly GMAC), Citigroup, Inc., J.P. Morgan Chase & Co., and Wells Fargo & Company (the “defendants”) have agreed to pay $95 million to settle false claims against the United States stemming from mortgage loan origination and servicing, alleged in civil complaints filed in U.S. District Courts in Charlotte, N.C. and Columbia, S.C., announced Anne M. Tompkins, U.S. Attorney for the Western District of North Carolina. This agreement partially resolves claims made by a whistle blower in complaints filed in both districts during 2010.

According to the redacted complaint filed in Charlotte that was partially unsealed earlier, the defendants made false claims in connection with their failure to obtain required mortgage assignments, were involved in servicing misconduct and the charging of inappropriate costs, and used false documents in federal government mortgage guarantee claims. The defendants, according to the complaint, falsely represented that they held good title to the notes and mortgages in connection with claims they submitted on the mortgage guarantees, resulting in payments from the Government that would not have been made if the Government had been aware of the true facts.

Under a federal law known as the False Claims Act, the Government is entitled to seek reimbursement for any payments made based on the submission of false claims. Under this statute, which is the primary weapon to fight fraud against the Government, persons who knowingly make false claims for federal funds are liable for three times the government’s loss plus a civil penalty of $5,500 to $11,000 for each false claim.

The False Claim Act also encourages good citizens to report evidence of fraud involving Government payments under its qui tam provisions. These whistleblower provisions authorize individuals, known as “relators,” to file suit on behalf of the United States against those who have falsely or fraudulently claimed federal funds. Such cases run the gamut of federally funded programs from Medicare and Medicaid to defense procurement contracts, disaster assistance loans, agricultural subsidies, and, as in this case, home mortgage loan guarantees. Under the statute, relators may recover between fifteen and twenty-five percent of the proceeds of any recovery ultimately received by the United States based on the information provided about fraudulent claims.

Claims brought under the False Claims Act have recovered more than one billion dollars in federal and state cases since the law was amended in 1986. Without the qui tam provisions, which were created by Congress to give ordinary citizens the courage and protection to blow the whistle on those who defraud the government, many such recoveries would not be possible.

The specific allegations of fraud made public today were brought to the Government’s attention through these whistleblower provisions. As a result, the relator who filed the complaint in this district will share in the recovery of the payments made to the financial institution as a result of the false claims. In this case, the relator will receive a total of $18 million for this $95 million recovery. The partial settlement of this complaint was resolved as part of the $25 billion agreement with the same defendants announced by the Department of Justice two weeks ago. Other allegations of fraudulent conduct, alleged in the complaint filed in Charlotte, remain under seal at this time.

“We are gratified to see an end to these false claims and we are proud to have been a part of the resolution of this significant investigation,” said U.S. Attorney Tompkins. “The resolution of the complaints filed in our district and the district of South Carolina, brought to us by a single honest citizen-whistleblower, will result in the recovery of the Government’s known losses arising out of false claims made in connection with the origination and servicing of mortgages in our districts. And, the total required payment of $95 million should send a strong warning that allegations of waste, fraud, and abuse will be investigated thoroughly and, if proven, will come with a high price tag.”

U.S. Attorney Tompkins also thanked the whistleblower for her courage and conviction in bringing the matter to the Government. “Whistleblowers are a protected class in my district,” Tompkins said. “We want to encourage each and every one of our good citizens to come to us with confidence that we will take their allegations of fraud seriously, we will honor the trust they place in us by aggressively investigating the accusations, and will insure that any recovery justifies their faith that good citizenship should be rewarded and bad citizenship will be punished,” Tompkins added.