Crime in the Suites: An Analyis of Current Issues in White Collar Defense
May 03

Bank Hit With FCA Complaint Over Mortgage Lending

On May 3, 2011, the U.S. Department of Justice filed a civil case against Deutsche Bank, Germany’s largest bank, asserting that Deutsche Bank was liable for more than $1 billion to the U.S. government for its statements and actions during the mortgage meltdown of the last few years.

This case is one of the few that has emerged from the mortgage crisis, and like many of the others, it’s a civil rather than a criminal case.

What’s particularly interesting is that the U.S. government is relying on the False Claims Act, a Civil War-era law that prohibits false claims against the government and that has been heavily relied on in contract disputes.

In this case, the government  asserts that the Frankfurt-based bank wrote mortgages for borrowers with dubious histories, then falsely certified to the Federal Housing Administration, a unit of the Department of Housing and Development that the loans were sound.

The complaint grows out of the conduct of MortgageIT, a subsidiary that Deutsche Bank owned at the time.

“Contrary to the certifications appearing on each and every mortgage endorsed by MortgageIT, MortgageIT engaged in a nationwide pattern of failing to conduct due diligence in according with HUD rules and with sound and prudent underwriting principles,” the complaint says. “MortgageIT knew that its certifications of compliance with HUD rules were false.”

Under the False Claims Act, the U.S. government can seek triple damages and penalties of more than $1 billion.

Prosecutors say that while HUD rules required Deutsche Bank and MortgageIT to implement quality control programs to prevent defaults by their borrowers, they “ignored quality control” and gave mortgages to almost anyone who applied.

Is this an appropriate use of the False Claims Act? After all, MortgageIT, it seems, didn’t make knowingly false statements about its borrowers in seeking FHA insurance for the loans. It simply made assessments that the borrowers were in good financial shape. They turned out not to be, and the FHA had to pay insurance claims. Is that the material out of which a $1 billion civil case should be made?

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About Ifrah Law

Crime in the Suites is authored by the Ifrah Law Firm, a Washington DC-based law firm specializing in the defense of government investigations and litigation. Our client base spans many regulated industries, particularly e-business, e-commerce, government contracts, gaming and healthcare.

Ifrah Law focuses on federal criminal defense, government contract defense and procurement, health care, and financial services litigation and fraud defense. Further, the firm's E-Commerce attorneys and internet marketing attorneys are leaders in internet advertising, data privacy, online fraud and abuse law, iGaming law.

The commentary and cases included in this blog are contributed by founding partner Jeff Ifrah, partners Michelle Cohen and George Calhoun, counsels Jeff Hamlin and Drew Barnholtz, and associates Rachel Hirsch, Nicole Kardell, Steven Eichorn, David Yellin, and Jessica Feil. These posts are edited by Jeff Ifrah. We look forward to hearing your thoughts and comments!

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