After six-year fight, Wells Fargo whistleblowers may have gotten boost to their case

The U.S Justice Department has weighed in on a long-running whistleblower lawsuit against Wells Fargo, in a move that could aid the two former employees that brought the case against the San Francisco-based bank.

In their suit, Paul Bishop and Robert Kraus alleged that Wells Fargo and predecessor Wachovia made false claims and statements in order to receive payments from federal agencies under various bailout programs during the financial crisis. They’re seeking damages on behalf of the federal government.

In February, the U.S. Supreme Court breathed new life into the case when it vacated a judgment in August 2016 by the U.S. Appeals Court for the Second Circuit that had affirmed a lower court’s decision to dismiss the case.

The high court ordered the appeals court to give the case further consideration in light of a June 2016 Supreme Court ruling that interpreted an aspect of the federal whistleblower law called the U.S. False Claims Act. On Tuesday, the U.S. Justice Department filed a friend of the court brief that did not take a position on the merits of the case, but it did say the United States “has a significant interest in ensuring that courts properly construe” the False Claims Act. It urged the court to “to amend its prior analysis” on one aspect of the case.

The filing could prove a new headache for Wells Fargo, which in recent months has been trying to recover from a sales practice scandal unrelated to the case.

“We continue to believe these claims are without merit, as the previous court decisions have confirmed,” Wells spokeswoman Mary Eshet said Tuesday evening. “We look forward to the opportunity to again present legal arguments to the Second Circuit Court of Appeals.”

Under the U.S. False Claims Act, whistleblowers can file actions on behalf of the government and be eligible to receive up to 30 percent of any damages or penalties awarded under the action. A number of such cases have been included in larger multibillion-dollar settlements with banks over their mortgage-related operations.

Whistleblowers Kraus and Bishop first filed their lawsuit on behalf of the federal government in 2011 in U.S. District Court for the Eastern District of New York. They alleged the bank defrauded U.S. agencies that loaned money and provided other assistance to Wachovia in the financial crisis. Wells bought Wachovia in 2008 as the Charlotte bank verged on failure.

Kraus is a former Wachovia controller who lives in Union County, and Bishop is a former Golden West mortgage loan officer who lives in California’s Bay Area. Wachovia acquired Golden West in 2006.

Among other allegations, their suit alleged fraud occurred inside Wachovia’s corporate and investment bank, which was a major player in packaging commercial real estate loans into securities. The complaint also alleged that Golden West Financial had poor internal controls and inadequate underwriting practices.

The federal government declined to join the case alongside Kraus and Bishop, but the complaint continued to move forward until Wells Fargo was successful in winning the case’s dismissal in 2015. In that ruling, the U.S. District judge focused on whether the suit met the requirements of a False Claims Act case, rather than the specific allegations against Wachovia and Wells Fargo.

The Justice Department brief is the latest wrinkle in a case that has taken years to play out for the whistleblowers who filed it.

“It’s been a long time coming,” Bishop said in an interview. “I would say that a lot of former Wachovia executives have escaped the long arm of the law. Hopefully, that will change.”

This story was originally published June 6, 2017 at 11:04 PM with the headline "After six-year fight, Wells Fargo whistleblowers may have gotten boost to their case."