Bank of America may soon be the first major bank sued by the federal government for their part in the financial crisis.
The U.S. Justice Department filed a civil lawsuit against the financial giant last year, and jury selection began on Tuesday.
According to the government, the defendants participated in a "host of irresponsible origination practices that prioritize funding speed and discourage scrutiny and quality into a singularly risky loan manufacturing process that pumped out large quantities of poor quality loans."
The case is based on an action filed by whistleblower Edward O’Donnell, a former executive at Countrywide, which Bank of America took over in 2008. O’Donnell charged that Countrywide sold thousands of defective loans to finance companies from 2007 thru 2009, contributing to the nation’s financial collapse.
The bad loans stemmed from a program called "High Speed Swim Lane,” which some called “HSSL," or "Hustle." According to the government, the program spurred "rampant instances of fraud and other serious loan defects."
The program was run by codefendant Rebecca Mairone, former COO of Countrywide' s Full Spectrum Lending Division. Mairone’s attorney, Marc Mukasey of Bracewell & Giuliani, called it “a shame the government is wasting time and money on a case that is utterly devoid of merit."
According to Lawrence Grayson, spokesperson for Bank of America, “This program ended before our purchase of Countrywide, as the government acknowledges. We believe there was no fraud."
A jury will ultimately determine the truth of these statements, and U.S. District Judge Jed Rakoff will be responsible for issuing any penalties. In 2010, Rakoff rejected a settlement of $33 million between Bank of America and the U.S. Securities and Exchange Commission for failing to disclose financial information. Ultimately, a higher settlement of $150 million was reached in that case.
Despite plans for a trial, there remains a chance that Bank of America will settle for the fraud charges — and if that happens, no big banks will have answered in court for their misdeeds.