More details about the U.S. government’s $1 billion False Claims Act settlement with Bank of America earlier this month spilled into the public domain on Friday, when a federal judge in Brooklyn unsealed a whistleblower complaint against Countrywide Financial Corporation that sources confirm is related to the deal.
Hagens Berman Sobol Shapiro filed the suit in Brooklyn federal district court in May 2009 for former appraiser at Countrywide subsidiary LandSafe Inc., Kyle Lagow. Lagow accuses Countrywide and its affiliates of defrauding the Federal Housing Administration, which insures loans to homeowners.
The unsealing of the qui tam complaint by ex-LandSafe employee follows the Brooklyn U.S. Attorney’s Office announcement on Feb. 9 of a $1 billion deal with Bank of America to settle False Claims Act allegations of underwriting and origination mortgage fraud. Bank of America agreed to the settlement as part of the larger global $25 billion foreclosure accord that BofA and four other banks announced that same day.
The Justice Department has not yet intervened in the suit and the docket gives no public indication of a settlement agreement. But people familiar with the matter confirmed that the suit is connected to the $1 billion Bank of America settlement.
“It’s tied into [the] settlement,” Steve Berman of Hagen Berman said in a brief e-mail. He declined to comment further “until the larger deal is inked.”
Bank of America spokesman Rick Simon confirmed that the suit against Countrywide that was unsealed Friday “is related to the $1 billion [BofA] settlement in principle.”
In the complaint, Lagow said he witnessed first hand as Countrywide corrupted the underwriting and appraisal process during his tenure at LandSafe in from June 2004 to November 2008. The complaint accuses Countrywide and its affiliates of knowingly and fraudulently inflating property appraisals on FHA-backed loans. Lagow claimed that Countrywide awarded appraisers who inflated home values while retaliating against those who resisted or produced lower-valued appraisals.
A spokesman for Brooklyn U.S. Attorney Loretta Lynch declined to comment. The docket shows correspondence dating back to 2009 between Judge Raymond Dearie and Richard Hayes, an assistant U.S. attorney in Brooklyn who was amongthose involved in the investigation that lead to the $1 billion BofA deal. Hayes declined comment. In an order Friday, Judge Dearie gave the government until March 16 to file a notice of intervention.
A settlement in the case could put Lagow in line for one of the largest whistleblower awards in U.S. history under the False Claims Act. The Civil War-era law provides qui tam relators with awards of 15 to 30 percent of the government’s recovery. In the only other financial crisis settlement so far involving a False Claims Act whistleblower, the government agreed to pay CitiMortgage Inc. employee Sherry Hunt $31.7 million—-20 percent of a $158.3 million accord with Citigroup Inc. announced Feb. 15.
At least two other False Claims Act cases against lenders over alleged mortgage abuses were filed directly by prosecutors with no whistleblower involvement. On Friday, Flagstar Bancorp and the Manhattan U.S. Attorney’s Office announced a settlement worth up to $133 million arising from Flagstar’s improper approval of mortgage loans insured through the FHA program. Deutsche Bank was separately socked with a $1 billion False Claims Act suit in May. The Deutsche Bank suit remains pending.
Lawyers representing Bank of America in the Brooklyn litigation, including Meyer Koplow of Wachtell, Lipton, Rosen & Katz and Phillip Schulman of K&L Gates, either declined comment or did not respond to requests for comment.