BofA Tipster Gets to Keep His Reward -- WSJ
May 25 2016 - 3:02AM
Dow Jones News
Court throws out fine against bank, but complex rules are in
whistleblower's favor
By Christina Rexrode and Aruna Viswanatha
Edward O'Donnell blew the whistle on "the Hustle," a high-speed
mortgage-selling scheme that led to a $1.27 billion fine against
Bank of America in 2014. On Monday, an appeals court threw out the
penalty -- but Mr. O'Donnell still gets to keep a $58 million
reward.
How come? The answer lies in a complex web of cases against the
bank and the different funds used to cover different alleged
violations.
Mr. O'Donnell was the government's star witness in its trial
against Bank of America in 2013 over the so-called Hustle, the
nickname for a program named "High-Speed Swim Lane," or HSSL, that
encouraged employees to sell high volumes of mortgages quickly. But
he didn't get paid from the $1.27 billion penalty since the bank
decided to appeal it. So Mr. O'Donnell instead filed a separate,
similar whistleblower lawsuit against the bank in June 2014, when
the company was in the late stages of negotiating what became a
$16.65 billion mortgage-securities settlement with the Justice
Department.
The Justice Department set aside money from that settlement for
Mr. O'Donnell and three other whistleblowers who had raised
different allegations about programs at the bank and Countrywide
Financial Corp., the mortgage giant that Bank of America acquired
at the height of the financial crisis. Mr. O'Donnell and two of the
other whistleblowers were employees of Countrywide.
In all, the bank paid $1.05 billion to resolve the four
whistleblowers' accusations; the Justice Department sent $170
million to the whistleblowers themselves. The remaining amount --
in this case, $880 million -- usually goes to the Treasury
Department or to "victim agencies," according to the Justice
Department. Among the other whistleblowers is Jim Marchese, a
former star of "Real Housewives of New Jersey" whose mortgage firm
was awarded $8.5 million.
Whistleblower lawsuits allow ordinary citizens and corporate
insiders to sue on behalf of the U.S. if the allegations involve
fraud against the federal government. If a case is successful, the
tipster can collect a portion of the penalties.
Regulators and law enforcers say whistleblowers are key to
rooting out wrongdoing on Wall Street and beyond, and they are
calling for bigger payouts and greater protections for them.
Whistleblowers often lose their careers when they accuse a company
of wrongdoing.
"Every whistleblower lawyer tells the client to be prepared for
lengthy delays and protracted litigation," said whistleblower
attorney David Colapinto.
The Hustle lawsuit put Mr. O'Donnell and his lawyer, David
Wasinger, in the middle of one of the signature cases of the
financial crisis, and what the government has hailed as a victory
in its quest to punish banks for the financial crisis.
In the Monday ruling, which was narrow in scope, a three-judge
panel said the bank might have engaged in "intentional breach of
contract" but that the Justice Department hadn't proved fraud.
The panel said the issue turned on timing, and that the
government needed to show -- and didn't -- that Countrywide
intended to defraud Fannie Mae and Freddie Mac when it entered into
contracts for the housing entities to purchase the loans at
issue.
The U.S. attorney's office in Manhattan, which brought the case,
had argued in a court filing that the contracts "expressly stated"
that the representations about the quality of the loans were
essentially renewed each time a loan was sold.
Mr. Wasinger said the average person would view the decision as
a technical ruling, in which "the bank got off the hook after a
jury and federal judge both found them liable."
Mr. Wasinger said Tuesday that Mr. O'Donnell had taken a huge
risk by turning on his former employer, and had provided invaluable
help to the Justice Department. Mr. Wasinger declined to say how
much he received in legal fees for the case.
Messrs O'Donnell and Wasinger were old business acquaintances
when Mr. O'Donnell came to him in 2012 saying that he wanted to go
public with misdeeds he said he witnessed at his former employer,
Countrywide.
Mr. Wasinger, an attorney at a small firm in St. Louis, had
mostly dealt in local business litigation and had only been to New
York twice, but he agreed to represent Mr. O'Donnell. As a result,
he also stumbled into another major case: He later represented the
whistleblower who helped the Justice Department secure a $614
million settlement against J.P. Morgan Chase & Co., which was
accused of submitting questionable mortgages for federal
insurance.
By the time Mr. O'Donnell filed his original lawsuit, he was
working for Fannie Mae, one of the companies that he said the bank
had defrauded. His attorney declined to say what he is doing
now.
(END) Dow Jones Newswires
May 25, 2016 02:47 ET (06:47 GMT)
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