By Christina Rexrode And Timothy W. Martin
There is a new winner in the biggest bank settlement to come out
of the financial crisis: whistleblowers.
Four whistleblowers will collect a total of more than $170
million for helping investigators get a record $16.65 billion
penalty against Bank of America Corp., among the biggest such
payouts to tipsters in history.
The payments, to three individuals and a small New Jersey
mortgage company, are in exchange for the whistleblowers'
cooperation in a probe into Bank of America's mortgage practices in
the years leading up to the financial crisis.
The whistleblower lawsuits accuse the bank or the firm it
acquired in 2008, Countrywide Financial Corp., of misdeeds like
inflating the value of mortgage properties and selling defective
loans to investors. The payments, which were sent out this week,
also underscore how the bank's purchase of Countrywide continues to
haunt the Charlotte, N.C., firm.
The allegations trace a familiar pattern, but the whistleblower
rewards provide a new wrinkle.
The size of the payments is "unprecedented in the financial
sector," said Richard Moberly, a law professor at the University of
Nebraska-Lincoln who researches whistleblower cases. The biggest
whistleblower awards have typically been associated with drug
companies or health-care frauds, he said.
The rewards, some of which were disclosed this week in court
filings, are the result of separate lawsuits the whistleblowers
filed against Bank of America and were then folded into the bank's
global settlement in August.
"These matters have been fully resolved," a bank spokesman said
Friday, referring to the whistleblowers' allegations.
The three individuals will each receive payments of tens of
millions of dollars, and the mortgage company, Mortgage Now of
Shrewsbury, N.J., will receive about $8.5 million, according to
court filings and people familiar with the rewards.
Prosecutors and regulators are increasingly making big payouts
to tipsters who help them ferret out financial misconduct. The
Securities and Exchange Commission in September announced that an
informer would collect a record whistleblower award of more than
$30 million, more than twice as much as the highest previous
award.
Attorney General Eric Holder also said this year that he wants
to boost payouts to motivate insiders to come forward with useful
information.
Robert Madsen, a former employee of LandSafe Appraisal, a
property appraisal company owned by Bank of America, will collect
roughly $56 million, according to a person close to the situation.
He had filed a complaint against the bank in 2011. Bank of America
acquired LandSafe when it bought Countrywide. LandSafe is among the
mortgage affiliates that Bank of America is trying to sell.
Mr. Madsen started working there around 2007. According to Mr.
Madsen, his bosses started cutting his hours after he raised
concerns about properties potentially being overvalued at the
expense of borrowers and investors.
Mr. Madsen said he initially thought his case was a long shot,
but pursued the lawsuit to protect his family. Along the way, he
came to view the case as a way to stoke awareness about the
importance of reliable appraisals. When "we don't know what the
houses are worth, that undermines virtually every bond, every
tranche, every investment instrument out there," Mr. Madsen
said.
Mr. Madsen, who lives in Northern California, left the bank
around early 2013 and started a company to help banks, investors
and other clients identify potential fraud in appraisal work.
Shareef Abdou, a former Countrywide manager, will receive about
$48 million for his cooperation in the investigation, a person
familiar with the matter said. Mr. Abdou is on a leave of absence
from Bank of America.
Mr. Abdou's complaint alleged that the bank sold defective
mortgage loans to mortgage-finance companies Fannie Mae and Freddie
Mac.
"He was able to indicate that there was an institutional
breakdown within the bank, and this was a systemic problem, not an
isolated incident," said Brian Mahany, a Milwaukee-based attorney
who represents Mr. Abdou.
Edward O'Donnell, a former Countrywide executive, will collect
nearly $58 million, according to a court filing this week. Mr.
O'Donnell had originally filed suit against the bank in 2012, with
allegations that are similar to Mr. Abdou's. His lawsuit created
the basis for the government's successful case against the bank
over a Countrywide mortgage program called the "Hustle," which U.S.
authorities said churned out large numbers of mortgage loans
without regard for quality.
Bank of America plans to appeal the Hustle verdict, and Mr.
O'Donnell hasn't received a financial award from the government for
that suit, according to his lawyer. The payout for Mr. O'Donnell
will come thanks to a separate, similar lawsuit he filed in June
against Countrywide and Bank of America.
Bank of America bought Countrywide in 2008. It said that the
Hustle program ended before it bought Countrywide.
The company that filed a whistleblower suit, Mortgage Now, had
accused Bank of America in 2012 of misrepresenting loans that it
submitted to the Federal Housing Administration for reimbursement,
according to one of the lawyers who worked on the case, Clifford
Marshall.
A combined $1 billion of the $16.65 billion settlement was
allotted to the three cases filed by the individual whistleblowers.
Their payouts will all amount to roughly 16%.
Mr. Mahany declined to say what Mr. Abdou plans to do with the
money. "He's a very private individual. I don't think he likes the
notoriety of the case," said Mr. Mahany. "He would just as soon go
on with his life."
Lisa Schwartz contributed to this article.
Write to Christina Rexrode at christina.rexrode@wsj.com and
Timothy W. Martin at timothy.martin@wsj.com
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