An appellate court on Monday overturned a fraud case verdict against Bank of America that stemmed from the financial crisis in 2008-09 that had ordered the institution to pay nearly $1.3 billion in penalties. File Photo by Alexis C. Glenn/UPI |
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NEW YORK, May 23 (UPI) -- A federal appeals court on Monday dealt a blow to the Justice Department's efforts to punish big banks for contributing to the financial crisis nearly a decade ago by overturning a massive penalty against Bank of America.
The U.S. Court of Appeals for the Second Circuit ruled that the federal government had not proven its case against the nation's second-largest bank -- and, accordingly, the North Carolina-based company does not have to pay the $1.27 billion penalty that stemmed from the case.
The Department of Justice investigated and claimed that Bank of America had sold shoddy mortgages that contributed to the financial crisis of 2008-09. Investigators said BoA's Countrywide Financial Corp. and a program called "Hustle" focused on distributing a large number of mortgages but were careless with the quality of the loans. The company then misrepresented the mortgage loans when they were subsequently sold to Fannie May and Freddie Mac, Justice officials claimed.
A jury found Bank of America liable for fraud in 2013 and ordered them to pay the massive fine. A $1 million civil penalty leveled against Countrywide executive Rebecca Mairone, one of the few individuals punished for the crisis, was also overturned by the appellate court.
"This case was a massive government overreach from inception,'' Mairone's attornney, Josh Rosenkranz, said. "[Prosecutors] tried to take an allegation of garden variety breach of contract and turn it into a fraud with crushing and career-ending penalties.''
Monday's ruling provides ammunition for critics who believe the Obama administration has exceeded its authority by going after banks and people for the mortgage market meltdown. If the ruling stands, it could undermine other investigations into other entities.
Analysts said the ruling is a major setback for the Obama administration because the BoA case had served as a significant framework for other efforts to seek restitution for the crippling fiscal crisis.
