Bank Watch

Feds allow high-profile case against Bank of America to quietly fizzle out

The Department of Justice had until Monday to ask the U.S. Supreme Court to take up its 2012 ‘Hustle’ lawsuit against Charlotte-based Bank of America. The DOJ let the deadline pass.
The Department of Justice had until Monday to ask the U.S. Supreme Court to take up its 2012 ‘Hustle’ lawsuit against Charlotte-based Bank of America. The DOJ let the deadline pass. mhames@charlotteobserver.com

The U.S. government let a high-profile mortgage case against Bank of America quietly fizzle out this week.

The Department of Justice had until Monday to ask the U.S. Supreme Court to take up its “Hustle” lawsuit against the Charlotte-based bank. In May, the 2nd U.S. Circuit Court of Appeals reversed findings against the bank in the 2012 case, the first civil fraud suit brought by the Justice Department over home loans sold to mortgage giants Fannie Mae and Freddie Mac.

A Justice Department spokeswoman did not comment on the decision to let Monday’s deadline pass. A Bank of America spokesman also declined to comment.

Named after a program at Countrywide Financial, acquired by Bank of America in 2008, the case was initially brought by former Countrywide executive Ed O’Donnell under a federal whistleblower statute.

The government, which took over the case, claimed Hustle rapidly processed loans without regard for their quality in the run-up to the financial crisis, resulting in thousands of fraudulent loans being sold to Fannie and Freddie and later defaulting. Countrywide marketed the “toxic products” as investment grade despite their poor quality, the government alleged, calling Hustle a “spectacularly brazen” loan-origination program.

In 2014, a federal judge ruled in the case that Bank of America should pay $1.27 billion in civil penalties and that former Countrywide executive Rebecca Mairone should pay $1 million. That ruling came after a jury’s findings against the bank and Mairone.

But in this year’s ruling, a three-judge panel of the appeals court overturned the jury’s findings and tossed out the penalties against the bank and Mairone. The judges said there was insufficient evidence that Countrywide committed mail and wire fraud in late 2007 and 2008.

That decision delivered a blow to the Obama administration’s attempts to hold financial institutions accountable for their role in the financial crisis.

The government then asked the appeals court to reconsider its decision, but that request was denied.

Deon Roberts: 704-358-5248, @DeonERoberts

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