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A Second Bank of America Whistle-Blower Is Set to Get $56 Million

  

dealbook.nytimes.com | December 19, 2014

By Matthew Goldstein

Robert Madsen, one of four whistle-blowers in the federal government’s $16.65 billion civil settlement with Bank of America, said keeping secret his cooperation with federal prosecutors for nearly four years had not been easy.

“It’s not a fun and pleasant experience,” said Mr. Madsen, 47, a former employee of LandSafe, a property appraisal company that is a subsidiary of Bank of America. “You are under a court ordered seal and you have all this stress.”

But for his efforts, Mr. Madsen is being rewarded.

Mr. Madsen said federal prosecutors would pay him $56 million, out of the $16.65 billion Bank of America agreed to pay in August to settle claims arising from the investigation into the bank’s mortgage lending and mortgage securitization business. The specific terms of Mr. Madsen’s settlement with the federal government remain sealed.

In an interview on Thursday, Mr. Madsen said he could not talk to many people about his behind-the-scenes cooperation with federal prosecutors, which involved turning over thousands of pages of documents and sitting for many interviews with an agent for the Federal Bureau of Investigation.

And, he said, when the process of working with federal authorities began, there was no guarantee anything would come of his claim that Bank of America systematically overvalued distressed residential properties held on its balance sheet, much of it after the 2008 financial crisis.

In a confidential complaint that Mr. Madsen filed in federal court in Manhattan against Bank of America in 2011, the appraiser said the bank deliberately used “improper appraisal practices” that overstated the value of the homes backing Bank of America’s portfolio of nonperforming loans by $6.6 billion. The 220-page legal filing said the improper appraisals at the bank’s LandSafe subsidiary continued until at least 2011.

“I did not go into this with the mindset that I would get some money,” said Mr. Madsen, a northern California resident.

Mr. Madsen said he filed the “qui tam” action under the federal False Claims Act, which is intended to help protect jobs of potential whistle-blowers who assert that they have claims of fraud against the federal government. Mr. Madsen’s complaint against Bank of America was unsealed by a federal judge on Dec. 9.

The government’s whistle-blower settlement with Mr. Madsen is comparable to the $57.6 million payout Edward O’Donnell, a former executive with Countrywide Financial, is receiving for his role in contributing to case prosecutors in New York were building against Bank of America. Mr. O’Donnell provided prosecutors with evidence that Countrywide, which Bank of America acquired in early 2008, were more interested in churning out mortgage despite growing signs of problems with quality of those loans.

Bank of America acquired LandSafe, where Mr. Madsen had worked, when it bought Countrywide Financial in 2008.

Lawrence Grayson, a spokesman for Bank of America, said on Thursday that the bank did not comment on “unfounded assertions.” He reiterated what he said on Wednesday about Mr. O’Donnell’s settlement with the federal government, which is that the bank had “fully resolved” the matter.

Neither the involvement of Mr. O’Donnell nor Mr. Madsen in providing authorities with information that helped forge the $16.65 billion settlement were known before this week.

Two other whistle-blowers were also credited by the federal government with providing useful information during the investigation in the civil settlement agreement between Bank of American and prosecutors. Their identities are not yet public.

Mr. Madsen’s cooperation is particularly interesting because the misconduct he cites in his lawsuit occurred mostly after the financial crisis — he worked at LandSafe from 2007 to early 2013 — and is not directly tied to sale of mortgage-backed bonds.

His lawsuit said the “systemic misrepresentation” in property appraisals and valuations made the bank “appear to be more profitable and financially stable” than it was at the time.

Mr. Madsen, who spoke during a phone interview arranged by a public relations firm, said he did not believe that the conduct he saw at the bank’s residential property appraisal division was criminal. He said many of the problems he saw were “endemic to the entire appraisal industry.”

He said he intended to use some of the money from the settlement to help fund a new appraisal firm he co-founded two years ago called ValuationAnalytix. “I am intending to put some of this money back into this business,” said Mr. Madsen. “This is an industry I used to love.”

 

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