Manhattan U.S. Attorney Preet Bharara suffered a stunning loss as the Second Circuit Court of Appeals reversed a jury’s finding that a unit of Bank of America committed fraud by selling lower-quality mortgages on government-sponsored Fannie Mae and Freddie Mac to investors.
The upshot of Bush appointee Circuit Court Judge Richard Wesley‘s ruling is that the 2013 jury verdict holding BofA liable and the imposition of a $1.27 billion penalty has been tossed. So has the $1 million penalty against BofA executive Rebecca Mairone, who oversaw the creation of the “Hustle” program, which sped up loan processing. Bharara had alleged that the “Hustle,” an acronym for the “High Speed Swim Lane” program, had been generated by Countrywide out of defective loans that were re-sold to unwitting investors.
The reasoning of both the judge and the defense attorneys was that the government had at most proved breach of contract and not fraud.
The case is U.S. v. Countrywide Home Loans Inc., 15-496, U.S. Court of Appeals for the 2nd Circuit (New York).