Banking

Judge dismisses whistleblower case against Wells Fargo

A federal judge last week dismissed a whistleblower lawsuit that accused Wachovia’s investment bank of violating accounting rules and skirted internal controls to pursue short-term profits. Wells Fargo bought Wachovia in 2008.
A federal judge last week dismissed a whistleblower lawsuit that accused Wachovia’s investment bank of violating accounting rules and skirted internal controls to pursue short-term profits. Wells Fargo bought Wachovia in 2008. mhames@charlotteobserver.com

A federal judge has dismissed a whistleblower lawsuit that accused Wachovia’s investment bank of violating accounting rules and skirting internal controls to pursue short-term profits.

Two whistleblowers, including a former Wachovia controller who lives in Union County, filed their lawsuit on behalf of the federal government, alleging the bank defrauded U.S. agencies that loaned money and provided other assistance to the Charlotte-based bank in the financial crisis. Wells Fargo acquired Wachovia in 2008.

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.

In his ruling, U.S. District Judge Brian Cogan did not focus on “intricacies of the allegations” against Wachovia and Wells Fargo. Instead he focused on whether the suit met the requirements of a False Claims Act case. In his 19-page ruling Friday, he determined the claims failed because the plaintiffs’ “expansive theory of FCA liability is simply not viable.”

The case was filed in U.S. District Court for the Eastern District of New York under seal in 2011 by Robert Kraus, a former Wachovia controller who lives in Marvin, and Paul Bishop, a former Golden West mortgage loan officer who lives in California’s Bay Area. Wachovia acquired Golden West in 2006.

The whistleblower suit was unsealed in October 2014, after the government declined to join the case.

Joel Androphy, a Houston-based attorney representing the plaintiffs, said he plans to appeal.

“The court decided (the case) on legal parameters only and whether the case specifically fit within the False Claims Act,” Androphy said. “He didn’t decide it on its merits. We plan to appeal it and get the appellate courts to weigh in on the issues.”

Wells Fargo was not immediately available for comment. It has said the claims made in the case were without merit.

In 2010, the Observer wrote about an earlier lawsuit Kraus filed against Wachovia, as well as his struggles finding work in the financial industry after he said he was forced out of the bank. He and his family are facing a foreclosure action brought by Wells Fargo on their Marvin home.

Rick Rothacker: 704-358-5170, @rickrothacker

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