False Claims Act Resource Center

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Financial Industry Fraud

The financial industry is the recipient of billions of dollars in taxpayer funds from the United States, State Governments, and Government Pension Funds. Qui tam Whistleblowers play a key role in exposing fraud in the financial industry, which jeopardizes billions of dollars in taxpayer funds.

There are a number of Government-Funded Programs that are at risk for fraud by the financial industry, including:

  • Federal Bailout Program: In late 2008, the United States passed a massive $700 billion bailout program of the financial industry, known as the Troubled Asset Relief Program (“TARP”), Capital Purchase Program (“CPP”), and a $200 billion credit pool for the financial industry through the Term Asset-Backed Securities Loan Facility (“TALF”). These programs were designed to restore liquidity and stability to the financial system of the United States.The TARP Program has grown to include 12 separate, but often interrelated, programs involving Government and private funds of up to almost $3 trillion — roughly the equivalent of the entire 2008 Federal budget. From programs involving large capital infusions into hundreds of banks and other financial institutions, to a mortgage modification program designed to modify millions of mortgages, to public/private partnerships purchasing “toxic” assets from banks using tremendous leverage provided by Government loans or guarantees, TARP has evolved into a program of unprecedented scope, scale, and complexity. A detailed list of the recipients of TARP funds can be found at the United States Treasury Department’s Financial Stability website. Despite all of the media attention over the TARP and TALF programs, very little is known about the criteria used to select those businesses that received funding, and whether those businesses are properly spending taxpayer funds. Many in Congress, the media, and the financial industry believe that there is massive fraud in the TARP, CPP and TALF programs. Qui Tam whistleblowers, acting under the federal False Claims Act, are playing a critical role in exposing fraud on the TARP, CPP and TALF programs. Some of the most common areas of TARP/CPP/TALF fraud include:
    • False certification of eligibility for TARP/CPP/TALF funding
    • Conflicts of Interest for private parties managing TARP and TALF funds
    • Collusion among participants to use government funds for personal financial gain
    • Money laundering of illicit funds through TARP/TALF funded programs
    • Mortgage Modification Program Fraud (falsification of residence, income, value)
    • Failure to Comply with TARP, TALF and other Federal Rules and Regulations
  • Mortgage Fraud: The United States Government insures thousands of residential mortgages though the Federal Housing Administration (“FHA”). The FHA has been a frequent target for fraud by mortgage companies and other lenders that provide false information to the FHA in order to ensure that mortgages qualify for government backing. Common frauds include:
    • The borrower’s income is overstated, assets are overstated, collateral is overstated, the length of employment is overstated or fictitious employment is reported, and employment is backstopped by co-conspirators.
    • The borrower’s debts are not fully disclosed, nor is the borrower’s credit history, which is often altered.
    • The borrower assumes the identity of another person (straw buyer).
    • The borrower states he intends to use the property for occupancy when he/she intends to use the property for rental income, or is purchasing the property for another party (nominee). Appraisals almost always list the property as owner-occupied.
    • Down payments do not exist or are borrowed and disguised with a fraudulent gift letter.
    • The property value is inflated (faulty appraisal) to increase the sales value to make up for no down payment and to generate cash proceeds in fraud for profit.

    Providing such false information to secure FHA backing of mortgages potentially violates the False Claims Act.

  • Fraud Impacting Government Pension Funds: Government Pension Funds are some of the largest investors in the publicly traded securities and bonds. Securities Fraud and insider trading can have a devastating impact on government funded pension programs. Additionally, Government Pension Funds also purchase advisory and management services from outside financial firms. Fraud against Government Pension Funds can, in certain circumstances, violate the False Claims Act.

If you believe you have information related to a claim of Financial Industry or Mortgage Fraud, and would like to speak with a member of our qui tam whistleblower practice group about a potential false claims case, please feel free to contact us directly or click the Contact Us link.

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