Whistleblowers Stand Out in $16.65 Billion BofA Deal

Whistleblowers Stand Out in $16.65 Billion BofA Deal Mike Mozart/Flickr

What will private whistleblowers collect from Thursday’s $16.65 billion settlement with Bank of America?

That’s one of the lingering questions after the U.S. Department of Justice announced the deal, which resolves claims over Bank of America’s outsized role in the mortgage meltdown. In a press release, the government said a $1 billion portion of BofA’s total payout would resolve three private whistleblower lawsuits. Under the qui tam provisions of the federal False Claims Act, a whistleblower who provides original information can receive as much as 30 percent of the government’s recovery.

Bank of America’s 37-page settlement agreement with the DOJ prominently mentions the three qui tam lawsuits without offering any real details about the underlying claims, which were filed under seal. Curiously, two of the whistleblower suits weren’t filed until this year—long after the basic mechanics of Wall Street’s mortgage securitization machine were understood by prosecutors—and one wasn’t filed until June 4. According to the document, two of those cases will settle for $350 million each, and a third will settle for $300 million.

The agreement offers slightly more detail about a fourth whistleblower case that was also resolved as part of Thursday’s deal. That case, which settled for $50 million, was brought by a company called Mortgage Now Inc. that accused BofA and Countrywide Financial of submitting false claims to the Federal Housing Finance Agency.

The Mortgage Now case is at least the second whistleblower suit brought by the company’s CEO, James Marchese. In 2006 Marchese sued his former employer, Cell Therapeutics, accusing it of Medicare fraud. The government intervened and extracted a $10.5 million settlement. But prosecutors fought Marchese’s attempt to claim a reward, asserting that he masterminded another fraud scheme at the company. In the end, a federal judge approved a $1.6 million award to Marchese in 2007. (Marchese is married to Amber Marchese, one of the women featured on “The Real Housewives of New Jersey.” Strangely enough, he discussed his work on the case during the show.)

The Justice Department’s releases don’t indicate if the U.S. formally intervened in the whistleblower cases, as it generally does when prosecutors believe a False Claims Act case is strong. The DOJ’s press office didn’t respond to questions about the cases and whether they will eventually be unsealed. Eric Havian, who represents whistleblowers as a partner at Phillips & Cohen, said the government typically announces if it intervened when it takes action against a defendant targeted by a whistleblower.

Tipsters have already recouped significant rewards from litigation against Bank of America in the wake of the financial crisis. Edward O’Donnell, a former vice president at Countrywide, filed a whistleblower suit against Bank of America in 2012, alleging rampant fraud. The U.S. intervened and took the case to trial, and O’Donnell’s trial testimony ultimately contributed to a $1.27 billion civil penalty levied against the bank by Manhattan U.S. District Judge Jed Rakoff in late July.

Unfortunately for O’Donnell, Rakoff dismissed the False Claims Act portion of the case, along with its promise of a megamillions whistleblower award. O’Donnell is still entitled to a smaller award under the Financial Institutions, Reform, Recovery and Enforcement Act, but that amount is capped at $1.6 million.

Lynn Szymoniak got a reported $18 million award after the U.S. intervened in her qui tam lawsuit against BofA and other lenders over the fraudulent practice of “robo-signing.” And Kyle Lagow, a former employee at an appraisal company, received a reported $14 million after suing Countrywide for appraisal and underwriting fraud. BofA still faces more whistleblower suits that are not resolved as part of Thursday’s settlement. The settlement agreement mentions 13 pending qui tam actions that aren’t covered by the deal.

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