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BofA fails to overturn $1.27 billion Countrywide fraud verdict

  

reuters.com | February 4, 2015

By Jonathan Stempel

(Reuters) - A federal judge on Tuesday rejected Bank of America Corp's bid to throw out a jury verdict finding it liable for the sale of questionable loans to Fannie Mae and Freddie Mac before the financial crisis, which led to a $1.27 billion civil penalty.

U.S. District Judge Jed Rakoff in Manhattan said "the jury's conclusion that this was a massive and intentional fraud was amply supported by the evidence." He also rejected Bank of America's alternative request for a new trial.

Rebecca Mairone, a former midlevel executive at the bank's Countrywide unit, was the only individual charged, and was also found liable by jurors. Rakoff also rejected her bid to void that verdict and her $1 million civil penalty.

The U.S. Department of Justice had accused Countrywide of lying to Fannie Mae and Freddie Mac about the quality of loans it was selling to the government-controlled mortgage companies.

Its lawsuit centered on Countrywide's "High Speed Swim Lane" program, also called HSSL or Hustle, which was said to emphasize speed over quality, and reward staff based on volume.

The now-defunct program was created before Bank of America bought Countrywide in July 2008.

Rakoff rejected the defendants' contention that there was not enough evidence that they made any material misrepresentation to Fannie Mae and Freddie Mac, saying this argument "borders on the frivolous."

Bank of America spokesman Lawrence Grayson declined to comment, but said the Charlotte, North Carolina-based bank will appeal the Oct. 2013 verdict.

Marc Mukasey, a lawyer for Mairone, said in an email: "We respectfully disagree with the court's ruling, and are quite optimistic about our chances on appeal."

Both penalties were imposed by Rakoff last July. Bank of America's payout is not covered by the second-largest U.S. bank's $16.65 billion mortgage settlement the following month with federal and state authorities.

The Countrywide case was originally brought on the government's behalf by Edward O'Donnell, a former Countrywide executive who as a whistleblower would share in any recovery.

O'Donnell received a $57 million whistleblower award for a second Countrywide case that was resolved as part of the $16.65 billion settlement, court documents show.

The case is U.S. ex rel O'Donnell v. Bank of America Corp et al, U.S. District Court, Southern District of New York, No. 12-01422.

 

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