Al-Qaida Focus Excuses Late Wells Fargo Action
MANHATTAN (CN) - "Distracted by the demands of war," Uncle Sam should be excused for its belated attempt to sue Wells Fargo for mortgage fraud, a federal judge ruled.
Though Federal Housing Administration loan insurance requires strict underwriting criteria, including income verification, credit analysis and property appraisal, investigators said that Well Fargo and the other lenders failed to meet this standard.
Alleged misrepresentation by the banks of their regulatory compliance in annual certifications then left the government holding the bill on insurance claims for the defaulted FHA-insured mortgages.
Though five mortgage lenders struck a $25 billion deal with the governments of the United States, 49 states and the District of Columbia in March 2012, the government waited just a few more months to go after one of those parties, Wells Fargo, for violations of the False Claims Act and other areas that the release did not cover.
In Washington, where Wells Fargo had originally signed onto the settlement, a federal judge determined that the new lawsuit did not conflict with the prior deal.
The case then returned to New York, where it was filed, where the bank highlighted the lapsed statute of limitations. It claimed that the three-year clock began ticking when the inspector general for Housing and Urban Development learned about the alleged fraud in 2004.
Government lawyers contended the clock actually started ticking when the U.S. attorney general discovered the alleged misconduct in 2011, and that the Wartime Suspension of Limitations Act (WSLA) extended the speedy trial clock in any event to 10 years.
U.S. District Judge Jesse Furman mostly agreed with that reasoning on Tuesday.
"The WSLA serves not only to allow the government to combat fraud related to wartime procurement programs, but also 'to give the government sufficient time to investigate and prosecute pecuniary frauds' of any kind 'committed while the nation [is] distracted by the demands of war,'" he wrote.
This extends the government's time to file federal statutory claims such as the False Claims Act, which exposes Wells Fargo to the possible prospect of "hundreds of thousands of dollars" in treble damages, according to the ruling.
The WSLA cannot, however, apply to the common law claims, which must be dismissed, Furman said.
"In particular, any tort claims that arose before June 25, 2009, are time barred," he wrote. "Additionally, the government's mistake of fact and unjust enrichment claims are dismissed in their entirety: Those arising before 2004 are untimely, and those arising thereafter are barred because the United States Department of Housing and Urban Development was aware of Wells Fargo's misconduct at the time."
Noting its disappointment with the decision, Wells Fargo said it looks "forward to presenting facts to vigorously defend against this action." "Wells Fargo denies the allegations and believes it acted in good faith and in compliance with Federal Housing Administration and Department of Housing and Urban Development rules," the bank said in a statement.