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U.S. Sues Wells Fargo Under False Claims Act

October 10, 2012

Yesterday, the federal government continued its aggressive assault on financial institutions by filing suit against Wells Fargo, seeking multiple hundreds of millions of dollars in damages and civil penalties under the False Claims Act (FCA) and the Financial Institutions Reform, Recovery and Enforcement Act of 1989 (FIRREA). The suit filed in the United States District Court for the Southern District by U.S. Attorney Preet Bharara marks the fifth civil fraud lawsuit filed by Bharara and his Civil Fraud Unit (Unit) against major lenders in the last two years brought under the FCA and alleging reckless residential mortgage lending.

In the Wells Fargo matter, the government alleges that for the past 10 years the bank has falsely certified over 6,500 loans to meet the eligibility standards for government insurance. Not surprisingly, Wells Fargo has denied these allegations and has promised to “vigorously defend itself against this action.”

In addition to seeking treble damages and penalties under the FCA and FIRREA, the government is also seeking compensatory damages for claims including breach of fiduciary duty, gross negligence and unjust enrichment for the insurance claims that the department has paid and expects to pay for mortgages wrongfully certified by Wells Fargo. The bank has defended its conduct, asserting that it “acted in good faith and in compliance with Federal Housing Administration (FHA) and Department of Housing and Urban Development (HUD) rules.”

Of course, the action against Wells Fargo is not likely to be the Unit’s last on this topic. In 2011 the HUD’s Inspector General released the reports of an audit claiming that half of the loans originated by fifteen lenders failed to meet FHA standards for verifying borrowers’ income and other underwriting standards. Since 2008, HUD has paid more than $37 billion in claims related to defaulted mortgages.

The authors of Dykema’s Consumer Financial Services Law Blog, an industry leading resource on all things consumer financial services-related, are closely monitoring the Wells Fargo matter. Our full report is featured in this week’s feed. Click here to read our full blog post. 

Should you have any questions about the this or other enforcement actions, please contact the author of this alert, Jeffrey Jamison at 312-627-2101, or Richard Gottlieb, Director of Dykema's Financial Industry Group at 312-627-2196.


As part of our service to you, we regularly compile short reports on new and interesting developments in our business services program. Please recognize that these reports do not constitute legal advice and that we do not attempt to cover all such developments. Rules of certain state supreme courts may consider this advertising and require us to advise you of such designation. Your comments on this newsletter, or any Dykema publication, are always welcome. © 2012 Dykema Gossett PLLC. 

As part of our service to you, we regularly compile short reports on new and interesting developments and the issues the developments raise. Please recognize that these reports do not constitute legal advice and that we do not attempt to cover all such developments. Rules of certain state supreme courts may consider this advertising and require us to advise you of such designation. Your comments are always welcome. © 2017 Dykema Gossett PLLC.