* U.S. says bank caused taxpayers $1 billion in losses
* Bank acted to resolve mortgage problems -BofA spokesman
* BofA sold toxic mortgage loans to Fannie, Freddie -U.S.
By Grant McCool
NEW YORK, Oct 25 (Reuters) – Bank of America Corp employees could face civil fraud charges as part of a federal lawsuit accusing the bank of causing taxpayers more than $1 billion in losses by selling toxic mortgage loans to Fannie Mae and Freddie Mac, a prosecutor said on Thursday.
The comments were made at a hearing in Manhattan federal court to set a timetable for the U.S. Department of Justice’s first civil fraud lawsuit over mortgage loans sold to the two big mortgage financiers, which the government had announced on Wednesday. Fannie Mae and Freddie Mac were bailed out and put in government conservatorship in 2008.
“Potentially, the government may amend its complaint to include individuals, present or former employees of Bank of America,” Assistant U.S. Attorney Pierre Armand told U.S. District Judge Jed Rakoff.
The judge asked the prosecutors to amend their complaint by year end. The case involves mortgage lender Countrywide Financial Corp, which Bank of America bought in July 2008.
Most lawsuits by federal and state investigators against major banks over matters related to the recent financial crisis name few or no individuals as defendants.
An exception is the 18 lawsuits filed last year by the Federal Housing Finance Agency, the conservator for Fannie Mae and Freddie Mac, which named more than 130 individual defendants.
According to Wednesday’s complaint, Countrywide in 2007 invented, and Bank of America continued, a scheme known as the “Hustle” to speed up processing of residential home loans.
Operating under the motto “Loans Move Forward, Never Backward,” mortgage executives tried to eliminate “toll gates” designed to ensure that loans were sound and not tainted by fraud, the government said.
This led to defect rates that approached 40 percent, roughly nine times the industry norm, but Countrywide concealed this from Fannie Mae and Freddie Mac, and even awarded bonuses to staff to “rebut” the problems being found, it added.
In court on Thursday, Brendan Sullivan, a lawyer for Bank of America, said “fascinating issues arise here” and the complaint was “not like anything we have seen before.”
The lawsuit seeks civil fines and triple damages under the federal False Claims Act, which the government has used several times in recent years against Wall Street.
Lawrence Grayson, a bank spokesman, on Wednesday said the bank has “acted responsibly” to resolve older mortgage matters, but that at some point could not be expected to compensate every entity claiming losses caused by the economic downturn.
In February, Bank of America agreed to a $1 billion settlement of False Claims Act allegations over home loans submitted for insurance provided by the Federal Housing Administration, in a case from the U.S. Attorney’s office in Brooklyn, New York.
The case is U.S. ex rel. O’Donnell v. Bank of America Corp et al, U.S, District Court, Southern District of New York, No. 12-01422.
JPMorgan Chase Loses $2 Billion
On May 10th, the U.S.’s largest bank JPMorgan Chase announced one of its London trading desks had lost a href=”http://www.huffingtonpost.com/2012/05/10/jpmorgan-chase-london-whale_n_1507662.html?ref=business” target=”_hplink”$2 billion on bad bets on credit derivatives/a.
UBS Trader Loses $2 Billion
Kweku Adoboli, a trader for Swiss bank UBS, lost a href=”http://www.huffingtonpost.com/2011/09/15/ubs-traders_n_963715.html” target=”_hplink”$2 billion on unauthorized trades in September 2011/a.
MF Global Collapse
Brokerage firm a href=”http://www.huffingtonpost.com/2011/10/31/mf-global-to-file-for-bankruptcy_n_1066902.html” target=”_hplink”MF Global filed for Chapter 11 bankruptcy/a in October 2011 after a failed $6 billion bet on European debt.
Rogue Societe General Trader Loses $6 Billion
Hailed as “history’s biggest rogue trading scandal” at the time, French trader Jerome Kerviel was convicted in October 2010 of a href=”http://www.huffingtonpost.com/2010/10/05/jerome-kerviel-rogue-fren_n_750464.html” target=”_hplink”losing French bank Societe General around $6 billion/a due to unauthorized trades.
Bear Sterns Bought By JPMorgan Chase
After a run on investment bank Bear Sterns nearly caused its collapse in 2007, JPMorgan bought the firm for $2 a share the following March, a href=”http://www.businessweek.com/bwdaily/dnflash/content/mar2008/db20080316_356646.htm” target=”_hplink”Businessweek/a reports.
AIG Largest Single Bailout
Insurance company AIG became the recipient of the a href=”http://www.huffingtonpost.com/2012/05/08/aig-bailout-realize-15-billion-profit-taxpaers-gao_n_1498645.html” target=”_hplink”largest ever government bailout for a single corporation/a when a $182 billion rescue package saved it from a liquidity crisis following a a href=”http://www.huffingtonpost.com/2012/05/08/aig-bailout-realize-15-billion-profit-taxpaers-gao_n_1498645.html” target=”_hplink”downgrade of its credit rating/a in 2008.
Washington Mutual Bankruptcy
One of the biggest players in retail banking and mortgages during the housing crisis, Washington Mutual filed for Chapter 11 in September 2008, after sustaining losses on billions of dollars worth of mortgage and home loans, a href=”http://www.cnbc.com/id/46793926/WaMu_Emerges_From_Bankruptcy_Protection” target=”_hplink”CNBC/a reports.
Citigroup came to the brink of collapse after it reported losses around $10 billion in 2007, in part due to failed mortgage investments, a href=”http://money.cnn.com/2008/01/15/news/companies/citigroup_earnings/index.htm” target=”_hplink”CNNMoney/a reported. To keep the bank afloat the government issued a href=”http://www.huffingtonpost.com/2008/11/23/feds-consider-plan-to-res_n_145856.html” target=”_hplink”a $20 billion bailout in November of that year/a.
Merill Lynch Shocks Investors With Big Loss
After projecting a $4.5 billion loss during the third quarter of 2007, Merrill Lynch shocked investors by reporting a $7.9 billion deficit from trading mortgage-backed securities and other structured products, a href=”http://money.cnn.com/magazines/fortune/fortune_archive/2007/11/26/101232838/” target=”_hplink”according to CNNMoney/a.
Barings Bank Collapse
One time star trader Nick Leeson was responsible for sinking British bank Barings after losing $1 billion when an an earthquake struck Kobe, Japan in 1995, causing his investments in the Nikkei to fail as the Japanese stock exchange crashed, a href=”http://www.time.com/time/specials/packages/article/0,28804,1937349_1937350_1937488,00.html” target=”_hplink”TIME reported/a.