Category

Financial Services

18 May 2015

District Court Dismisses Legal Aid Group’s Qui Tam Action Against Mortgage Lender On Public Disclosure Bar Grounds

Posted by Jonathan Cohn and Brian Morrissey

On May 12, a federal district court dismissed what the New York Times had described as an “innovativequi tam suit against U.S. Bank, N.A., alleging that the lender had submitted over $2.3 billion in false claims for FHA insurance payments. United States v. U.S. Bank, N.A., No. 3:13-cv-704 (N.D. Oh. May 12, 2015). In an unusual step, the suit was brought by a legal aid group, Advocates for Basic Legal Equality, Inc. (“ABLE”), rather than by an individual relator.

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01 December 2014

DOJ Announces Nearly $6 Billion in Fraud Recoveries During 2014

Posted by Kristin Graham Koehler and Monica Groat

On November 20, Acting Associate Attorney General Stuart F. Delery and Acting Assistant Attorney General Joyce R. Branda announced that the Department of Justice recovered a record $5.69 billion in settlements and judgments from civil cases involving alleged fraud against the Government in fiscal year 2014. This figure represents the highest annual total recovery and an increase of nearly $2 billion over the Government’s recovery in fiscal year 2013.

Recoveries from the financial industry accounted for the most significant proportion of fraud-related recoveries, representing $3.1 billion of the total $5.69 billion. This amount was more than double the previous record for recoveries from banks and other financial institutions, which paid $1.4 billion in fiscal year 2012. Healthcare fraud represented the second largest area of recovery; DOJ recovered $2.3 billion from pharmaceutical and device manufacturers, hospitals, and other healthcare providers. Fiscal year 2014 was the fifth straight year during which the Government has recovered more than $2 billion in cases involving false claims against federal healthcare programs, including Medicare and Medicaid.

Of the $5.69 billion recovered this year, nearly $3 billion related to lawsuits filed under the FCA’s qui tam provisions, and relators recovered $435 million. The number of FCA qui tam suits filed in 2014 decreased slightly: 713 suits were filed in 2014, compared with 754 in 2013. These numbers indicate that both DOJ and private relators are continuing to bring FCA cases; although the volume of cases did not increase, recoveries by both the Government and relators increased. The announcement also confirms that DOJ is continuing to aggressively pursue fraud cases, with a continuing interest in healthcare fraud and an increasing focus on the financial industry.

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15 July 2014

Federal Prosecutors Continue to Seek Hefty Fraud Penalties Under FIRREA

As we blogged previously, Federal prosecutors are increasingly pressing claims under the Savings and Loan crisis-era Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA), as they continue to pursue alleged misconduct by financial institutions in the run-up to the 2008 crash. Often brought in conjunction with FCA claims, FIRREA gives prosecutors a much longer (10 year) statute of limitations, as well as more lenient burdens of proof. This trend continues with Citigroup’s $7 billion settlement announced Monday, which included a $4 billion FIRREA civil fine.

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12 November 2013

New York Proposes Law to Improve Incentives for Financial Industry Whistleblowers

Posted by David Rody and Lauren Treadaway

New York lawmakers have sought to fill a perceived gap in the New York State False Claims Act by providing a bounty and legal protections to whistleblowers who provide information for successful claims involving financial wrongs prohibited by state law. NYS Bill No. 4362, which is modeled in part on the New York State False Claims Act, provides new incentives to employees of financial services providers who report employer violations of New York State’s banking, insurance, and financial services laws. Currently, the New York Financial Services Law does not address monetary rewards or legal protection from employer retaliation for whistleblowers who report employer misconduct. Sponsored by New York State Senators James Seward and Joseph Griffo, S4362 would strengthen the current Financial Services Law in two significant ways: (1) by providing financial rewards for employees who disclose employer violations of New York State’s banking, insurance, and financial services laws to the Department of Financial Services (“DFS”); and (2) by including a provision for legal protection against employer retaliation for employees who report such misconduct.

If enacted, S4362 would allow a whistleblower who reports original information to receive between 10 and 30 percent of the total monetary sanctions received by DFS in a successful action against defendant based on the whistleblower’s information. The bill also creates legal protections for whistleblower employees against employer retaliation that mirror the remedies provided by the New York False Claims Act. According to the bill, a whistleblower employee may seek an injunction, reinstatement, backpay, and/or special damages where an employer retaliates against the employer by demoting, suspending, terminating, or harassing the employee. The full text of S4362 can be found here.

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26 June 2012

Mortgage Lender May Face FCA Liability For False Statements In HUD Applications And Annual Certifications In Connection With Loans That Ultimately Defaulted

Last week, the United States District Court for the Northern District of Illinois denied a motion to dismiss an FCA suit brought by the government against the president of MDR Mortgage Corp., a HUD and FHA loan correspondent. U.S. v. Luce, 2012 U.S. Dist. LEXIS 85095 (N.D. Ill. Jun. 20, 2012). The court held that the government may pursue its claims based on allegations that the defendant falsely certified in HUD residential loan applications (Form 92900-A) and annual verification reports that he had not previously been charged with “making false statements,” a crime for which he was indicted in 2005. In reaching this holding, the court held that the government had alleged that at least some of the loans connected to the false statements had defaulted, causing the government to pay money on the loan insurance policies, and was not required to specify the amount of damages at the pleadings stage. Notably, however, the court rejected the government’s contention that the defendant would be subject to statutory penalties for each of the loans for which false statements were submitted; rather, the court held that the government could only recover penalties as to those loans that resulted in a “claim” on the loan insurance.

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26 March 2012

Fourth Circuit Panel Holds That SEC Filings May Trigger Public Disclosure Bar

On March 14, a three-judge panel of the Fourth Circuit held that a defendant’s SEC filings may trigger the FCA’s public disclosure bar. In U.S. ex rel Jones v. Collegiate Funding Services, Inc., No. 11-1103 (4th Cir. March 14, 2012), 2012 U.S. App. LEXIS 5574 (slip opinion attached), the relators alleged that CFS, a major student loan lender, violated the FCA by falsely certifying compliance with a variety of loan program requirements. The defendants successfully moved to dismiss the relators’ amended complaint on the ground that certain allegations had been publicly disclosed in various places, including the defendant’s SEC filings.

On appeal, the relators argued that SEC filings do not qualify as “administrative reports” for purposes of the FCA’s public disclosure bar. The Fourth Circuit panel affirmed the district court, holding that “the SEC filings by CFS were reasonably determined to be administrative reports because they were submitted under the SEC’s administrative regulatory requirements of the company. Forms 8-K and S-1 are mandatory filings for all publicly traded companies. While these documents were not authored by the SEC or created under their supervision, they were produced at the request of and were made public by the SEC in the course of carrying out its activities as a federal agency.”

While the opinion is unpublished, and therefore of no precedential value, its reasoning has persuasive value. As the Fourth Circuit panel explained, “the Supreme Court has noted that statutory construction of the FCA should be guided by the likelihood that a disclosure will ‘put the Government on notice of a potential fraud . . . . Congress passed the public disclosure bar to bar a subset of those suits that it deemed unmeritorious or downright harmful . . . . The statutory touchstone, once again, is whether the allegations of fraud have been [publicly disclosed].’ [citing Graham County Soil & Water Conservation Dist. v. United States ex rel. Wilson, 130 S. Ct. 1396, 176 L. Ed. 2d 225 (2010)]. Here, the SEC forms in question were requested, received, made public, and presumably included in any corporate profiles compiled by the agency. While such a report does not necessarily alert federal agencies to wrongdoing, it certainly provides easily accessible notice of the transactions between CFS and its customers from which an investigation could have begun or developed.” Therefore, the panel concluded that “the SEC filings in question . . . were properly considered by the court below in the mix of publicly available information on the basis of which, in whole or in part, the Relators’ claims are based.”

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21 February 2012

CitiMortgage Reaches $158 Million Settlement of FCA Claims

Posted by Robert J. Conlan and Scott D. Stein

On February 15, 2012, the U.S. Attorney’s Office for the Southern District of New York announced that CitiMortgage, Inc., a subsidiary of Citibank N.A., settled a suit asserting violations of the FCA and Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA) arising out of allegations that CitiMortgage failed to comply with certain HUD-FHA requirements with respect to certain loans and submitted certifications to HUD-FHA stating that certain loans were eligible for FHA mortgage insurance when in fact they were not. As part of the settlement, CitiMortgage has agreed to pay $158.3 million in damages to the United States and a relator under the FCA.

The settlement has generated significant press coverage. An article in the American Lawyer notes that the settlement reflects the third case in less than a year in which DOJ has asserted FCA claims against a major financial institution for conduct relating to mortgage loans. Business Week reports on the settlement in an article titled “More Financial Whistleblowing Is On The Way.” And Reuters has an interesting article on the genesis of the suit, including an interview with the whistleblower, who remains an employee of CitiGroup.

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