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Whistleblowers Cash In

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Two whistleblowers have cashed in after turning in Bank of America Corp. for alleged illegal actions. The payout to one of the employees, a former appraisal manager, is nearly $15 million. Whistleblowers are being sought, meanwhile, in an attempt to uncover illegal activities by issuers of residential mortgage-backed securities.

Separate actions were previously filed by two individuals who claim they were fired after raising concerns about activities occurring at BofA.

The plaintiffs, known as “Qui tam” relators, took the actions under the whistleblower provision of the False Claims Act. The provision provides for relators in such lawsuits to collect between 15 percent and 30 percent of amounts awarded when the government intervenes.

A final settlement has been reached with Kyle W. Lagow, according to the law firm that handled his case, Hagens Berman. He was a former home appraisal manager for LandSafe Inc., an appraisal management company owned by Countrywide Financial Corp.

Lagow claims that there was widespread disregard for Federal Housing Administration requirements at the BofA unit. He accuses LandSafe President Todd Baur of telling him early in his career at LandSafe that the AMC’s role was to facilitate home-sale closings instead of preparing accurate real estate appraisals.

Not long after his conversation with Baur, Lagow says he learned that sales representatives at KB Homes, which operated a joint venture with Countrywide, would turn away LandSafe appraisers and choose their own appraisers.

He alleges that Countrywide conspired with LandSafe and homebuilder KB Homes to inflate appraised values. He claims that data on prior sales was withheld from his staff appraisers, and publicly available multiple listing service data was manipulated.

Appraisers who didn’t go along with the scam were intimidated through an audit process or even blacklisted., according to the former executive.

The conspiracy helped Countrywide fund larger loans.

“As he dug deeper, he found that KB Homes had hired one person to handle all appraisals in Houston, an impossible task for one person,” the statement said. “Yet, the appraiser turned in more than 400 appraisal orders per month.

“Lagow was further shocked to find that the appraiser was paid an inflated rate of nearly $450 per report.”

He said that he repeatedly raised concerns to his superiors, but he was subsequently fired in 2008.

Hagens Berman Managing Partner Steve Berman said, “We believe the scheme both directly and indirectly cost the United States government billions of dollars.”

So Lagow turned in his former employer — earning himself $14.5 million and leading to a $1 billion settlement.

Gregory Mackler, also reached a final settlement.

Mackler worked for Urban Lending Solutions, a company that was contracted to handle loan modifications for BofA processed under the Home Affordable Modification Program.

He alleged fraudulent handling of HAMP modifications. Instead of helping qualified HAMP prospects, BofA is accused of undermining their ability to obtain a modification.

After raising objections about the alleged practices to executives at Urban and BofA, Mackler was terminated in March 2011.

Mackler’s actions reportedly led to a temporary suspension of HAMP payments and the return of $6 million to the Department of the Treasury.

The amount received by Mackler was not indicated in the announcement.

Hagens Berman hopes to reap more windfalls from a whistleblower website that it recently launched.

Also launching a website for prospective whistleblowers was the Residential Mortgage-Backed Securities Working Group — a collaborative effort led by five co-chairs.

Among the group’s members are the U.S. Department of Justice’s Assistant Attorney General for the Criminal Division Lanny Breuer, Acting Assistant Attorney General for the Civil Division Stuart Delery and U.S. Attorney for the District of Colorado John Walsh. Also included in the group are Securities and Exchange Commission Director of Enforcement Robert Khuzami and New York State Attorney General Eric Schneiderman.

The working group hopes to uncover fraud in the marketing of RMBS.

“Although the working group and its members have done a tremendous amount of investigative work already — including having issued more than 25 civil subpoenas — we know that hearing from insiders is particularly valuable,” Acting Associate Attorney General Tony West said in a May 24 announcement. “There are scores of people who worked in the RMBS market who acted responsibly but who also may have witnessed greed and misconduct that crossed the legal line and created havoc for investors, homeowners and our economy.”

West noted that whistleblowers enjoy legal rights that protect their ability to speak out without the fear of retaliation.

Wave of Whistleblower Actions Ahead for Mortgage Firms
A trio of recent multi-million dollar awards to whistleblowers — including a borrower, two mortgage brokers and a mortgage executive — combined with attorneys who have exhausted whistleblower cases in another industry could mean that an onslaught of such cases against mortgage firms is on the way. But there are steps that companies can take to minimize the fallout from potential false claims cases.

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