Court: U.S. Can Pursue Case Against BofA Over Mortgages

bank of america lawsuit fannie mae freddie mac
Justin Sullivan/Getty Images
By Aruna Viswanatha

A federal judge ruled Wednesday that the U.S. can pursue parts of a civil lawsuit against Bank of America for its sale of toxic mortgages to Fannie Mae and Freddie Mac, boosting a largely untested legal theory the government used in the case.

Bank of America had sought to dismiss the lawsuit, which seeks penalties under two laws. One is the False Claims Act, which is often used to target fraud against the government, and the other is the 1989 FIRREA law.

FIRREA doesn't yet have much of a track record in court, but the government turned to in the wake of the financial crisis as a potential means to target civil fraud involving financial institutions.

U.S. District Judge Jed Rakoff issued a two-page ruling that dismissed the claims in the lawsuit seeking penalties under the False Claims Act, but allowed the claims that seek penalties under FIRREA to advance. Rakoff, in New York, said he will explain the reasons for his decision at a later date.


The ruling comes as something of a surprise, since Rakoff at a hearing last month appeared skeptical of how the Justice Department had used FIRREA in its case.

The lawsuit, which blames Bank of America for more than $1 billion in losses incurred by the government-controlled mortgage finance companies, accuses the bank of engaging in a scheme to defraud them through a program started at the former Countrywide Financial Corp., which the bank acquired in 2008.

FIRREA, or the Financial Institutions Reform, Recovery, and Enforcement Act, allows the government to seek civil penalties against anyone who commits a fraud "affecting a federally insured financial institution."

But in a trio of cases, banks including Bank of America Corp. (BAC), Bank of New York Mellon Corp. (BK) and Wells Fargo & Co. (WFC) have argued that the law cannot apply when the only financial institution affected by a fraud was the institution that allegedly committed the fraud.

Another federal judge in New York rejected that argument last month in a case against Bank of New York Mellon, and allowed accusations that the bank overcharged clients for trading currencies to move forward.

A Justice Department spokeswoman declined to comment on the Wednesday ruling. A representative for Bank of America did not immediately respond to a request for comment.

Learn about investing from the comfort of your own home.

Portfolio Basics

Take the first steps to building your portfolio.

View Course »

Investment Strategies

Learn the strategies you need to build a winning portfolio

View Course »

Add a Comment

*0 / 3000 Character Maximum

7 Comments

Filter by:
gardeoala

All Reverse Mortgage Company was extremely helpful and accommodating from the very first contact. Both their personal and professional care was outstanding and we feel they performed with our best interest as their uppermost concern.


http://www.reversemortgagelendersdirect.com/reverse-mortgage-loan/
http://www.reversemortgagelendersdirect.com/new-york-reverse-mortgage/
http://www.reversemortgagelendersdirect.com/reverse-mortgage-calculator/
http://www.reversemortgagelendersdirect.com/reverse-mortgages-how-they-work/
http://www.reversemortgagelendersdirect.com/reverse-mortgages-pros-and-cons/

July 14 2013 at 4:45 PM Report abuse rate up rate down Reply
audioknot1

Screw them to the wall.

May 09 2013 at 2:41 AM Report abuse rate up rate down Reply
mesager42

Oh, boo hoo, BofA needs to get a clue!

May 08 2013 at 11:14 PM Report abuse rate up rate down Reply
setanta54s_back

will someone explain HOW frannie and freddie CONTINUE to operate ?

May 08 2013 at 8:34 PM Report abuse rate up rate down Reply
hsstempe

let's see if ratkoff holds stock and how much in bofa competitor. start with jpmorganchase.or wells fartco crooked is crooked!

May 08 2013 at 7:21 PM Report abuse rate up rate down Reply
Shecky Vegas

So, since they were the financial institution who committed fraud against theirselves (and their customers), they cannot be sued?
Defiinitely sounds like something a lawyer would make up. How about if we just cut off the feet of all the board members? Maybe that'll make an impact on them.

May 08 2013 at 5:38 PM Report abuse rate up rate down Reply
1 reply to Shecky Vegas's comment
navalphoto

Feet hell, how about heads?

May 08 2013 at 7:22 PM Report abuse rate up rate down Reply