You are all too young to remember this song.
Executives at Countrywide, a mortgage company, played this song and danced around the conference room while announcing the HSSL mortgage program, which stands for the High Speed Swim Lane program. Get it: HSSL = Hustle. Anyway, the dancing bankers were celebrating the program that would keep their company profitable by speeding up the approval process for mortgages. Countrywide saw the writing on the wall; the mortgage bubble was about to burst, and the bank needed to get a lot of mortgages approved quickly. The HSSL program tied bonuses to speed. Anyone else see where this is headed?
Soon after Countrywide hustled its way into many mortgages for people with bad credit, the company was acquired by Bank of America. What was Countrywide’s problem because Bank of America’s problem, and last week Bank of America was found liable in a mortgage fraud case. The jury also found a a former top manager at Countrywide, Rebecca Mairone, liable as well. She was accused of valuing quantity over quality, and knowingly defrauding the government by requiring that her staff approve mortgages for unqualified borrowers.
The case is being seen as a big victory for the government in its efforts to hold banks accountable for the financial collapse in 2007-2008. Interestingly, the case was brought by a qui tam plaintiff, meaning a whistleblower from within Countrywide, so he will win a portion of the federal government’s award, reportedly up to $1.6 million.
The government used The Financial Institutions Reform, Recovery, and Enforcement Act to bring its claim against Countrywide. FIRREA, as the law is known, allows the government to pursue civil charges for a range of violations usually addressed through criminal statute that we have just discussed in class, including mail fraud, wire fraud and bank fraud. But unlike criminal cases, which require prosecutors to establish guilt beyond a reasonable doubt, FIRREA cases only require guilt be established by a preponderance of the evidence.
Next, Judge Rakoff will decide the punishment. The Department of Justice has asked for $848.2 million in fines. If the fine is even close to that, it will be an extremely expensive dance party for Bank of America.
2 Comments
Nick Li posted on November 2, 2013 at 10:53 pm
These fines are nothing more than a slap on the wrist for giant corporations such as BoA and J.P. Morgan, which was caught in a similar mortgage fraud case. I remember in LA245 going over how difficult it is to criminally convict executives who can hide behind corporate entities, but if we were able to do that, I’m pretty sure they would think twice about knowingly screwing over the economy, singing songs in their cubicles, and sending joke e-mails to their fellow employees about it.
Nicole Bishop posted on November 21, 2013 at 12:08 pm
I agree with Nick above. The amount of money is just change for these companies. They will loose sight of this and do it again next time they need to increase their bottom line. I am not entirely sure how we can prevent big and powerful companies whose management group are very disconnected from the other levels of the company to think about the overall company, not just the bottom line. I think above Nick is implying that if we fined the management group who control these decisions they would stop making these mistakes. However this is not always possible because of the way these companies are filed. Corporations protect employees and keep the business assets and their workers separately. This shows that corporations could be good and bad.