The federal prosecutors seeking out those responsible for the housing crisis of 2008 have just gained an encouraging victory in their case against Bank of America, as the bank was found liable last Wednesday of having sold defective loans that lead ultimately to the crisis. The prosecutors had a risky road in taking them on, and any other verdict would have balked future litigation; but in this case they not only secured the verdict they sought, but they were able to identify and prosecute a specific individual, Rebecca Mairone, the top manager of Bank of America’s Countrywide Financial unit.
This is good news, as most of those to suffer for the financial crisis of 2007 and 2008 have not been those responsible for it, and many have voiced frustration that few executives were charged for the fiasco. Mairone’s role in this was her incentive program she proposed for her bank, called “high-speed swim lane,” whose initials are HSSL, and which has subsequently been nicknamed the “hustle” program. This program allowed bankers to bestow loans that were sure to fail, propping such disasters on Fannie Mae and Freddie Mac, and ultimately causing $1 billion in losses.
“In this case, Bank of America chose to defend Countrywide’s conduct with all its might and money, claiming there was no case here,” said Preet Bharara, the United States attorney in Manhattan, as reported by dealbook.com. “The jury disagreed. This office will never hesitate to go to trial to expose fraudulent corporate conduct and to hold companies accountable, particularly when it has caused such harm to the public.”
Bank of America naturally felt otherwise, and said so, claiming, “the jury’s decision concerned a single Countrywide program that lasted several months and ended before Bank of America’s acquisition of the company,” as bank spokesman Lawrence Grayson said. “We will evaluate our options for appeal.”
Their lawyer further insisted on Mairone’s innocence. “She’s a model of honesty, integrity and ethics,” said Marc Mukasey, of Bracewell & Guiliania – and aren’t all defendant’s clients so? “She never engaged in any fraud because there was no fraud. We’ll fight on.”
They will meanwhile have to pay fines to be determined by the tough judge Jed. S. Rakoff, who thinks regulators don’t seek enough in these cases. This time, prosecutors are asking for $848 million. And though JPMorgan, for its part on these issues, has already paid $13 billion, Bank of America will likely see this case open the door for further litigation against them.
Image source: Reuters