MANHATTAN (CN) – Countrywide Home Loans, now a subsidiary of Bank of America, must pay $1.3 billion for the “brazen fraud” it perpetrated “not just on the immediate victims but also on the financial system as a whole,” a federal judge ruled Wednesday.
Former Countrywide vice president Edward O’Donnell filed a whistleblower lawsuit two years ago, alleging that the company operated a “High Speed Swim Lane,” also known as “The Hustle,” from August 2007 to May 2007.
The U.S. Attorney’s Office took up the case and brought it to trial, where a jury found the company and its officer Rebecca Mairone civilly liable for fraud for inducing Fannie Mae and Freddie Mac to buy inflated securities.
In a 19-page opinion, U.S. District Judge Jed Rakoff remarked that, because he had been “mesmerized by the defendants’ superb defense attorneys” at trial, he believed at the time that the case had been a “close case.”
Rakoff, who obviously changed his mind since then, wrote in his ruling that the High Speed Swim Lane was “from start to finish the vehicle for a brazen fraud by the defendants, driven by a hunger for profits and oblivious to the harms thereby visited, not just on the immediate victims but also on the financial system as a whole.”
He ordered Countrywide to pay a $1,267,491,770 judgment.
Known for criticizing prosecutors for being soft on corporate crime, Rakoff recently made headlines for decrying the practice of allowing banks to settle cases without admitting or denying the allegations against them.
His attempt to scuttle a settlement between the SEC and Citibank on those grounds was recently overturned on appeal.
In his latest ruling, Rakoff remarked that Countrywide had “other, higher-level individuals [that] arguably participated in the fraud but were, for whatever reason, not charged by the government.”
Manhattan U.S. Attorney Preet Bharara nevertheless said in a statement that the jury’s verdict “sent a loud and clear message to Wall Street that this kind of conduct will not be tolerated.”
“This is the first case in which a bank or any of its executives has been found liable under FIRREA for mortgage fraud leading up to the financial crisis, and now it is the first case in which civil penalties have been imposed upon a bank or any of its executives following such a finding,” Bharara said.
FIRREA, the Financial Institutions Reform, Recovery, and Enforcement Act of 1989, was created in the wake of the savings and loan crisis.
Co-defendant Countrywide Bank became the poster boy of the financial crisis that set off the Great Recession in 2008. Bank of America bought Countrywide that year.
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