Articles Posted in Lending Fraud

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Loan-Application 2B&H Education, the operator of a chain of beauty and massage schools known as the “Marinello School of Beauty,” which are located in the state of California, paid over $8 million dollars to settle a False Claims Act (“FCA”) lawsuit brought by employees-turned-whistleblowers.

The False Claims Act, originally enacted in 1863 during height of the civil war to combat rampant fraud in government contracting, was amended by Congress in 1986 to enhance the federal government’s ability to recover losses from fraud against the United States.

Violations of the FCA are subject to civil penalties (approximately $20,000) for each false claim plus three times the amount of the loss that the government incurred as a result of the defendant’s actions.

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Bank-ManagerA West Palm Beach, Florida-based mortgage company has agreed to a $30 million settlement to rid itself of False Claims Act violation allegations. Ocwen Financial Corp will pay $15 million to the federal government and $15 million to cover the attorneys’ fees and costs incurred by whistleblowers who brought the False Claims Act case.

Ocwen Financial, formed in 1988, has been servicing residential mortgage loans since that year, and has serviced “subprime” mortgages since 1994. The company holds 671,623 residential loans worth more than $102.2 billion. The company also owns commercial assets totaling $290.9 million.

The False Claims Act (“FCA”) is a federal statute that allows whistleblowers, or “relators,” to bring qui tam lawsuits on behalf of the United States government and against their employers who are committing frauds against the government.

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Model-House-on-Money-200x300Last week, M&T Bank (“M&T”), headquartered in Buffalo, New York, agreed to pay $64 million dollars to settle allegations that the company violated the False Claims Act. Whistleblower Keisha Kelschenbach initiated the suit by alleging M&T knowingly originated and underwrote mortgage loans insured by the U.S. Department of Housing and Urban Development (HUD) that did not meet applicable requirements.

During the time period covered by the settlement, M&T Bank participated as a “direct endorsement lender” in the HUD insurance program. Under the program, M&T had the authority to originate, underwrite, and endorse mortgages for insurance.  If M&T approved a mortgage loan for insurance and the loan later defaulted, the holder of the loan could submit an insurance claim to HUD for the losses resulting from the defaulted loan.

Under the program, HUD did not review M&T’s loans for compliance before it is endorsed them for insurance. M&T, as a government fiduciary, was therefore required to (1) follow program regulations intended to ensure the company is properly underwriting and certifying mortgages for insurance; (2) maintaining a quality control program that can prevent and correct deficiencies in underwriting practices, and (3) self-report any deficient loans identified by the bank’s quality control compliance program.

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Housing-Fr4aud-150x150 3Walter Investment Management Corporation has agreed to settle a False Claims Act (FCA) allegation for $29.63 million. It was alleged that Walter Investment had been submitting false claims to the United States Department of Housing and Urban Development for years. These submissions were made by three subsidiaries of Walter Investment and included Reverse Mortgage Solution Inc., Reo Management Solutions LLC, and RMS Asset Management Solutions LLC. It was alleged that the false submissions contained improper dates, causing the government to over reimburse the lenders, and that these dates were intentionally misstated in order to fraud the government. The lawsuit, United States ex rel. McDonald v. Walter Investment Management Corp., et al., was settled without a determination of liability on behalf of Walter Investment. Continue reading

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Whistle 2Education Affiliates (EA) was involved in a lawsuit for violating the False Claims Act (FCA) according to the US Department of Justice (DOJ). Five whistleblowers came forward with information regarding the for-profit education company, stating that EA was submitting false information to the Department of Education to receive federal student aid for students enrolled in its programs. The DOJ recently reached a settlement with EA for $13 million. The whistleblowers, who brought the case under the qui tam provisions of the FCA, will each receive a percentage of the whistleblower’s share of $1.8 million. The whistleblowers who came forward with this information helped the government prevent further fraudulent billing by EA. Continue reading

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The UnitedHousing-Fr4aud 2 States Department of Justice (DOJ) has filed a lawsuit against Quicken Loans, alleging that Quicken’s approval of inappropriate loans resulted in millions of dollars in loss to the government. Michigan-based Quicken Loans, the third-largest mortgage lender in the country, allegedly made hundreds of these loans from September 2007 until December 2011 through the Federal Housing Administration (FHA) program. The complaint alleges that Quicken disregarded FHA rules when approving loans. This suit is one of many recently filed by the DOJ under the False Claims Act against several of the nation’s largest lenders. Continue reading

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Model-House-on-MoneyFirst Tennessee Bank, headquartered in Memphis, Tennessee, has reached a settlement with the U.S. Department of Justice regarding the bank’s actions during the mortgage crisis between 2006 and 2008. The False Claims Act case alleged that First Tennessee Bank knowingly originated and underwrote mortgage loans that should never have been approved because they did not meet applicable requirements, causing the government to pay claims on those loans that should never have been insured. The loans were insured by the US Department of Housing and Urban Development’s (HUD) Federal Housing Administration (FHA). This settlement in principle finalizes the repercussions of the bank’s involvement in the housing crisis.

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Housing-Fr4aud2On Thursday, the Eleventh Circuit Court of Appeals denied Wells Fargo Bank N.A.’s (“Wells Fargo”) attempt to dismiss a complaint filed by two relators alleging that the company defrauded veterans with excessive fees on loans guaranteed by the U.S. Department of Veterans Affairs (“VA”). The relators brokered thousands of VA Interest Rate Reduction Refinancing Loan (“IRRRL”) loans. As brokers, the relators worked directly with veterans to take their applications, gather necessary documents, and connect them with a lender who actually originates the loan. During this time, the relators allegedly discovered that Wells Fargo “bundled” unallowable fees with allowable fees, fraudulently passing those unallowable fees on to veterans and concealing them from veterans and the VA. Following the government’s decision not to intervene in the case and after their complaint was unsealed, the relators began to vigorously pursue the claims against Wells Fargo and other lenders. To date, the relators have succeeded in recovering over $161 million for the federal government from six other lenders. Continue reading

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Model-House-on-MoneyA former human resources director of American International Group, Inc. (“AIG”) has asked a New York federal judge for permission to amend his False Claims Act complaint against the multinational insurance company, alleging that it defrauded the federal government in connection with the restructuring of the debt that it owed as a result of the bailout. Relator Alex Grabcheski claims that, as a result of AIG’s misrepresentations, the interests in American Life Insurance Co. (“ALICO”) and American International Assurance Limited (“AIA”) that the government acquired were allegedly worth at least $100 million less than what the government had “paid” for them in debt reduction. The amount of debt reduction was based on the valuations of the two subsidiaries, and the valuations were inflated because they were based on the assumption that the facts regarding ALICO and AIA’s business and operations were accurate. Continue reading

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Hedge-Fund-Manager-Holding-MoneyA qui tam complaint unsealed in New York federal court this week alleges that Commerzbank AG (“CBK”) violated the False Claims Act in connection with a $350 million loan that it secured from the Federal Reserve Bank as a result of the 2007 financial crisis. In response to the crisis, the Bank introduced the Term Discount Window program, allowing banks to borrow from the discount window for longer periods. CBK was the first foreign bank to take advantage of this money. The bank allegedly failed to disclose that they had traded gold on behalf of the Central Bank of Iran. CBK had, however, impliedly and expressly certified compliance with the rules and regulations regarding sanctions on Iran as well as other statutes that prohibited its activities. CBK therefore fraudulently received the benefits of a loan from the federal government of the United States. CBK is a German global banking and financial services company headquartered in Frankfurt, Germany. Its three main businesses are retail banking, commercial and mortgage banking, and investment banking. Continue reading