The Department of Justice (DOJ) sued Bank of America and some of its affiliates on Tuesday, alleging that the bank defrauded investors. This most recent litigation involves the bank’s mortgage operations regarding loans represented as “prime jumbo mortgages,” as opposed to subprime mortgages, which were at the center of the housing market crash and financial crisis.
The lawsuit states that Bank of America lied to investors, “made false statements after intentionally not performing proper due diligence and filled the securitization with a disproportionate amount of risky mortgages originated through third party mortgage brokers.”
The bank defrauded investors by “vastly understating the risks of mortgages backing about $850 million in securities,” The New York Times reports. In 2007, prime jumbo mortgages were loans of more than $417,000 for a single-unit dwelling. The DOJ contends that the mortgages were far more dangerous than the investors were led to believe, and estimated that total losses sustained by investors will exceed $100 million.
Tuesday’s announcement marks a continuation of the attempt to hold banks and companies accountable for their reckless practices. The lawsuit is part of ongoing efforts of President Obama’s Financial Fraud Enforcement Task Force, the DOJ reports. The Securities and Exchange Commission (SEC) also filed civil charges in federal court on Tuesday against Bank of America for defrauding investors.
“Bank of America’s reckless and fraudulent origination and securitization practices in the lead-up to the financial crisis caused significant losses to investors,” said US Attorney Anne M. Tompkins. “Bank of America will have to face the consequences of its actions. We have made a commitment to the American people to hold financial institutions accountable for practices that violated the law and wreaked havoc on the financial system…”
In June, Massachusetts citizens attempted to gain class action status in order to file suit against Bank of America. The homeowners, who were trying to get loan modifications from the bank, were denied modifications even though they were eligible. As part of that case, the plaintiffs submitted six sworn affidavits from former Bank of America employees.
According to investigative journalist, David Dayen, the bank employees’ testimonies described a “sea of criminality” inside the bank, including staff being told to throw out documents, lie to homeowners, and tell homeowners that their cases were under review when they weren’t. The employees reported being given quotas for how many homeowners they could “push into foreclosure,” and given staff bonuses for reaching those quotas.
“This most recent lawsuit by the Department of Justice exemplifies the ongoing fight to hold institutions accountable for their reckless Wall Street mentality,” said Peter Mougey, a shareholder at the Levin, Papantonio law firm. “Bank of America has been one of the most serious offenders. The regulators must continue to show these institutions that defrauding customers and engaging in risky business practices for the sake of profits will not be tolerated.”