U.S. seeks $864 mln from Bank of America after fraud verdict


By Nate Raymond and Jonathan Stempel

NEW YORK, Nov 9 (Reuters) - The U.S. government urged thatBank of America Corp pay $863.6 million in damages aftera federal jury found it liable for fraud over defectivemortgages sold by its Countrywide unit.

In a filing late Friday in the U.S. District Court inManhattan, the government also asked for penalties againstRebecca Mairone, a former midlevel executive at the bank'sCountrywide unit who the jury also found liable, "commensuratewith her ability to pay."

The government said the penalties were necessary to punishthe bank and Mairone "and to send a clear and unambiguousmessage that mortgage fraud for profit will not be tolerated."

Bank of America and Mairone were each found liable fordefrauding government-controlled mortgage companies Fannie Mae and Freddie Mac through the sale of shoddyloans purchased from Countrywide in 2007 and2008.

The case centered on a mortgage lending process atCountrywide, which Bank of America bought in July 2008, known asthe "High Speed Swim Lane," or alternatively "HSSL" or "Hustle."

The government said Countrywide's program emphasized andrewarded employees for the quantity rather than the quality ofloans produced, and eliminated checkpoints designed to ensurethat loans were sound.

The penalties the government requested are slightly higherthan the amount lawyers in the office of Manhattan U.S. AttorneyPreet Bharara had previously indicated they would seek, $848.2million. The amount is based on the gross loss Fannie Mae andFreddie Mac incurred on the HSSL loans, the government said.

Bank of America, the second-largest U.S. bank, haspreviously said it is evaluating its options for appeal. It isscheduled to respond to the government's penalty request by Nov.20.

"We believe the filing overstates the volume of loans andthe appropriate measure of damages arising from one narrowCountrywide program that lasted several months and ended beforeBank of America acquired the company," Lawrence Grayson, a spokesman for the bank, said Saturday.

In its filing, the government did not said it was holdingoff on recommending an amount to penalize Mairone until after itanalyzed a financial disclosure form she provided Friday. Thegovernment also raised the question of whether Bank of Americamay indemnify her for the penalty.

Mairone joined JPMorgan Chase & Co. after leaving thebank. Her lawyer did not immediately respond to a request forcomment Saturday.

Penalties will be assessed by U.S. District Judge JedRakoff, who presided over the four-week trial in Manhattan.

The Oct. 23 verdict was a major victory for the U.S.Department of Justice, which along with other regulators hasbeen criticized by investors, politicians and others for failingto hold banks and individuals accountable for their roles inevents leading up to the 2008 financial crisis.

Bank of America paid $2.5 billion for Countrywide, butanalysts have said that acquisition has since cost theCharlotte, North Carolina-based bank tens of billions of dollarsfor litigation, loan repurchases and writedowns.

In October, Bank of America disclosed that staff of anunspecified U.S. Attorney's office plan to recommend that theJustice Department file a civil action against the bank relatedto the securitization of mortgages.

And in August, the government filed two civil lawsuits inNorth Carolina accusing the bank of understating the risks ofabout $850 million of mortgage securities. The bank moved todismiss those case Friday.

The Hustle case, like some other financial crisis casesrecently pursued by the government, was brought under theFinancial Institutions Reform, Recovery, and Enforcement Act, alaw passed after the 1980s savings-and-loan scandals.

That law carries a lower burden of proof than criminalcases, and a 10-year statute of limitations in which to bringcases, twice as long as in typical securities fraud cases.

The case is U.S. ex rel O'Donnell v. Bank of America Corp etal, U.S. District Court, Southern District of New York, No.12-01422.

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