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New York Judge Rejects Wells Fargo Motion to Dismiss U.S. Lawsuit of Fraud

In a surprise defeat to Wells Fargo, U.S. District Judge Jesse Furman in Manhattan has rejected the bank’s motion to dismiss the U.S. Attorney’s lawsuit accusing it of fraud in the sale of mortgages to HUD.

Judge Furman is following the decisions of his fellow judges on the Manhattan federal court, Jed Rakoff and Lewis Kaplan, in cases they are hearing against Bank of America Corp and Bank of New York Mellon Corp., respectively. He agreed with the interpretation of the U.S. Department of Justice’s interpretation of the Financial Institutions Reform, Recovery and Enforcement Act of 1989 (FIRREA). FIRREA was enacted following the savings-and-loan meltdown in the mid-1980s and gives the government the right to sue for fraud when a federally-insured financial institution is involved.

The lawsuit was brought by then U.S. Attorney Preet Bharara in Manhattan in October 2012. Bharara cited Wells Fargo’s alleged “longstanding and reckless trifecta of deficient training, deficient underwriting and deficient disclosure, all while relying on the convenient backstop of government insurance.”

Wells Fargo had argued that the FIRREA claim should be dismissed because the only institution affected by its conduct was itself.

Trial began earlier this week in the Bank of America case being heard in front of Judge Rakoff. In that case, the government is accusing the second-largest U.S. bank of violating FIRREA through the fraudulent sale of risky loans to Fannie Mae and Freddie Mac. Read more by clicking on the link to this post on the California Real Estate Fraud Report.

In 2012, the government settled False Claims Act mortgage cases for $1 billion with Bank of America, $202.3 million with Deutsche Bank AG, $158.3 million with Citigroup Inc and $132.8 million with Flagstar Bancorp Inc.

The case is U.S. v. Wells Fargo Bank NA, U.S. District Court, Southern District of New York, No. 12-07527.

Read the original article in Reuters.

© Copyright 2007-2017 Monique Bryher

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