| NEW YORK
NEW YORK Nov 9 The U.S. government urged that
Bank of America Corp pay $863.6 million in damages after
a federal jury found it liable for fraud over defective
mortgages sold by its Countrywide unit.
In a filing late Friday in the U.S. District Court in
Manhattan, the government also asked for penalties against
Rebecca Mairone, a former midlevel executive at the bank's
Countrywide unit who the jury also found liable, "commensurate
with her ability to pay."
The government said the penalties were necessary to punish
the bank and Mairone "and to send a clear and unambiguous
message that mortgage fraud for profit will not be tolerated."
Bank of America and Mairone were each found liable for
defrauding government-controlled mortgage companies Fannie Mae
and Freddie Mac through the sale of shoddy
loans purchased from Countrywide in 2007 and
The case centered on a mortgage lending process at
Countrywide, which Bank of America bought in July 2008, known as
the "High Speed Swim Lane," or alternatively "HSSL" or "Hustle."
The government said Countrywide's program emphasized and
rewarded employees for the quantity rather than the quality of
loans produced, and eliminated checkpoints designed to ensure
that loans were sound.
The penalties the government requested are slightly higher
than the amount lawyers in the office of Manhattan U.S. Attorney
Preet Bharara had previously indicated they would seek, $848.2
million. The amount is based on the gross loss Fannie Mae and
Freddie Mac incurred on the HSSL loans, the government said.
Bank of America, the second-largest U.S. bank, has
previously said it is evaluating its options for appeal. It is
scheduled to respond to the government's penalty request by Nov.
"We believe the filing overstates the volume of loans and
the appropriate measure of damages arising from one narrow
Countrywide program that lasted several months and ended before
Bank of America acquired the company," Lawrence Grayson, a
spokesman for the bank, said Saturday.
In its filing, the government did not said it was holding
off on recommending an amount to penalize Mairone until after it
analyzed a financial disclosure form she provided Friday. The
government also raised the question of whether Bank of America
may indemnify her for the penalty.
Mairone joined JPMorgan Chase & Co. after leaving the
bank. Her lawyer did not immediately respond to a request for
Penalties will be assessed by U.S. District Judge Jed
Rakoff, who presided over the four-week trial in Manhattan.
The Oct. 23 verdict was a major victory for the U.S.
Department of Justice, which along with other regulators has
been criticized by investors, politicians and others for failing
to hold banks and individuals accountable for their roles in
events leading up to the 2008 financial crisis.
Bank of America paid $2.5 billion for Countrywide, but
analysts have said that acquisition has since cost the
Charlotte, North Carolina-based bank tens of billions of dollars
for litigation, loan repurchases and writedowns.
In October, Bank of America disclosed that staff of an
unspecified U.S. Attorney's office plan to recommend that the
Justice Department file a civil action against the bank related
to the securitization of mortgages.
And in August, the government filed two civil lawsuits in
North Carolina accusing the bank of understating the risks of
about $850 million of mortgage securities. The bank moved to
dismiss those case Friday.
The Hustle case, like some other financial crisis cases
recently pursued by the government, was brought under the
Financial Institutions Reform, Recovery, and Enforcement Act, a
law passed after the 1980s savings-and-loan scandals.
That law carries a lower burden of proof than criminal
cases, and a 10-year statute of limitations in which to bring
cases, twice as long as in typical securities fraud cases.
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.