False Claims Act: New suit against BofA represents change in government's use
In a recent case filed by the U.S. Justice Department against Bank of America, federal prosecutors based their case on the whistleblower law, the False Claims Act (FCA). Enacted to encourage citizens to come forward with information and help the U.S. government defend against fraud, the law has allowed the Justice Department to hold banks accountable for their role in the mortgage meltdown and foreclosure crisis. However, the FCA only applies to instances where the government has been defrauded, not private investors.
This is what makes the suit against Bank of America unique, representing a change in how the government has used the FCA. The suit alleges that Countrywide defrauded the government by misrepresenting the quality of mortgage loans it sold to Fannie Mae and Freddie Mac. Freddie and Fannie were an unusual combination of the U.S. government and private investment. Both were publicly traded until September 2008 when the government placed them under conservatorship.
Commenting on the suit, Motley Rice whistleblower attorney Mark Labaton told Reuters that "Here you're dealing with a period of time when (Fannie and Freddie) are to a large degree private entities. And that's what I think (Bank of America's lawyers) will argue if they fight this, that you're not dealing with a public entity."