blog home Firm News Court Allows Whistleblower Lawsuit Alleging Fraud in Veterans’ Loans to Proceed

Court Allows Whistleblower Lawsuit Alleging Fraud in Veterans’ Loans to Proceed

By Butler Prather LLP on November 20, 2012

Six Banks Pay $161.7 Million to Settle Prior to Ruling

Case Against Wells Fargo and Mortgage Investors Moves to Trial

ATLANTA, November 19, 2012

Today United States District Judge Amy Totenberg allowed a whistleblower lawsuit to proceed against Wells Fargo and Mortgage Investors Corporation (“MIC”) that alleges the banks had illegally charged veteran borrowers hidden fees on refinanced home loans backed by the Veterans Administration. Wells Fargo and MIC had filed motions seeking dismissal of the lawsuit. According to the lawsuit, the banks’ misconduct has cost taxpayers hundreds of millions of dollars.

Prior to the federal court ruling, six other banks which had also filed motions to dismiss elected to settle the claims against them in the case. Those six banks agreed to pay a total of $161.7 million, leaving Wells Fargo and MIC as the only remaining defendants.

“We look forward to trying the case against Wells Fargo and Mortgage Investors,” said James E. Butler, Jr. of Butler Prather LLP, lead counsel for the whistleblowers. “Those two are by far the biggest defendants – they have 70 percent of the damages exposure of the eight defendants.”

The five banks which have agreed to settle recently are Countrywide Home Loans, Inc. ($45 million), PNC Bank ($38 million), First Tennessee Bank ($16 million), SunTrust Mortgage ($10.2 million), and CitiMortgage ($7.5 million). In March, JP Morgan Chase agreed to pay $45 million to settle claims against it.

“Although the majority of the banks have settled the claims against them, the two largest defendants remain,” said Marlan Wilbanks of Wilbanks & Bridges, LLP in Atlanta, which also represents the whistleblowers. “Our clients have strong evidence against Wells Fargo and Mortgage Investors. This case will be simple for a jury to understand. The banks have misled veterans and cheated the taxpayers out of hundreds of millions of dollars over the last decade.”

Judge Totenberg entered a 34 page Order denying in part and granting in part the motion to dismiss filed by defendant Wells Fargo, and a 31 page Order denying the motion for summary judgment filed by defendant MIC. Under the Court’s Orders the case will proceed with regard to Relators’ claims that the defendant lenders committed fraud by making false certifications to the Veterans Administration for the purpose of getting fraudulent claims paid by the Government in violation of 31 U.S.C. § 3279(a)(2) of the False Claims Act.

The whistleblower lawsuit alleges that the eight banks cheated military veterans and taxpayers out of millions of dollars by hiding illegal fees in veterans’ home mortgage refinancing transactions and then sought to collect on government loan guarantees procured through the fraud when such loans went into default. Any VA guarantees for those loans are void because unallowable fees were charged.

The “qui tam” (whistleblower) lawsuit was filed in 2006 in federal district court in Atlanta, Georgia, by whistleblowers Victor Bibby and Brian Donnelly. The lawsuit is brought on behalf of United States taxpayers, and seeks to recover damages which will be payable to the Government. The lawsuit was brought under the federal False Claims Act, which allows whistleblowers to sue companies that are defrauding the Government and collect recoveries on the Government’s behalf. The statute was adopted at the behest of President Abraham Lincoln in 1863 during the Civil War to fight fraud by government contractors providing supplies to the Union Army. In False Claims Act cases, the whistleblowers are called the “Relators”.

Relators Bibby and Donnelly were initially represented by the Atlanta, Georgia firm Wilbanks & Bridges. The lawsuit remained under seal by Court Order for years while the Government considered whether to take over the case. In 2011, Wilbanks & Bridges brought in additional law firms — Butler Prather LLP of Atlanta and Phillips & Cohen LLP of Washington, DC. In September 2011 the Government decided not to intervene “at this time” and the lawsuit was unsealed.

“The False Claims Act is a powerfully effective weapon to protect taxpayers from getting ripped off and to recover for taxpayers when fraud has been committed,” said Butler.

CASE CITATION: United States of America ex rel. Victor E. Bibby and Brian J. Donnelly,, Defendants, Relators/Plaintiffs vs. Wells Fargo Bank, N.A. and Mortgage Investors Corporation United States District Court, Northern District of Georgia, Atlanta Division, Civil Action No. 1:06-CV-0547-AT. (See PACER documents 317 and 318 for Orders entered November 19, 2012.)

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