Today, the Second Circuit reversed Judge Rakoff’s $1.2 billion penalty against Bank of America/Countrywide for FIRREA violations (see our previous coverage here).  The case involved allegations that BoA/Countrywide had sold faulty mortgages to Fannie Mae and Freddie Mac, originally brought as a qui tam suit under the False Claims Act in which the government intervened.  The Second Circuit’s decision focused on whether the breach of a contractual promise, without further proof of fraudulent intent at the time of contracting, could sustain a claim for fraud.  The Second Circuit held that it court not:
Continue Reading Second Circuit Reverses Judge Rakoff’s $1.2 Billion Penalty in BOA-Countrywide FIRREA Litigation

In an opinion today, Judge Rakoff rejected motions to set aside a jury verdict in the so-called “Hustle” case, in which the government accused Countrywide (later acquired by Bank of America) and an officer named Rebecca Mairone of a scheme to defraud Fannie Mae and Freddie Mac into buying faulty mortgages.  The jury had ruled against the defendants and Judge Rakoff then ordered damages of $1.3 billion (see our prior posts on the case here). The defendants sought to set aside the verdict by arguing “that the Government’s evidence did not establish that the HSSL loans were of lower quality than Fannie and Freddie could have reasonably expected, and therefore that they made no misrepresentations that were material,” but Judge Rakoff rejected the argument as “border[ing] on the frivolous”:
Continue Reading Judge Rakoff: Challenge to Countrywide “Hustle” Jury Verdict “Borders on the Frivolous”

In an opinion today, Judge Rakoff ordered Bank of America to pay $1.3 billion in the so-called “Hustle” case, in which a jury found that Countrywide (later acquired by Bank of America) and an officer named Rebecca Mairone engaged in a scheme to defraud Fannie Mae and Freddie Mac into buying faulty mortgages. Judge Rakoff rejected Bank of America’s argument that the statute at issue, FIRREA, required the penalties to be calculated by reference to the “net” gains or loss resulting from the alleged conduct:
Continue Reading Judge Rakoff Orders Bank of America to Pay $1.3 Billion in “Hustle” Case

In an opinion dated Friday, Judge Cote granted partial summary judgment to the FHFA (the conservator for the two Government-Sponsored Enterprises, or “GSEs,” Fannie Mae and Freddie Mac), dismissing various banks’ affirmative defense that the GSEs had knowledge that the mortgage securities at issue were defective. The essence of her ruling was that, while the GSEs may have had generalized knowledge of problems with mortgage origination, there was no evidence that they had specific knowledge that the representations at issue were false:
Continue Reading Judge Cote Rejects, As a Matter of Law, Banks’ Defense That FHFA Knew Mortgage Securities Were Defective

In the wide-ranging litigation against banks that sold mortgage-backed securities to two government-sponsored enterprises, Fannie Mae and Freddie Mac, Judge Cote issued a decision Monday largely denying a motion to dismiss brought by certain of the banks.  The plaintiff Federal Housing Finance Agency (or “FHFA,” as conservator for Fannie Mae and Freddie Mac) claims that the banks’ offering documents falsely described the strength of the loans and the underwriting process.  As evidence of fraud, FHFA pointed out that the ratings agencies substantially downgraded the securities after the banks sold them.  The banks argued that this was simply “fraud by hindsight,” especially because of the intervening financial crisis.  Judge Cote rejected that argument:
Continue Reading Judge Cote Allows Fannie Mae and Freddie Mac Conservator to Proceed With Claims Against Banks