On September 14, 2017, the U.S. District Court for the Southern District of Texas issued an opinion and order against two former mortgage companies and their former president and CEO. The order, which followed a previous jury verdict against the company, awarded the Government nearly $280 million in treble damages under the False Claims Act (FCA), approximately $13 million in FCA civil penalties, and $6,600,000 in penalties under the Financial Institutions Reform, Recovery and Enforcement Act (FIRREA).
The order stems from an action that began as a qui tam whistleblower suit in the U.S. District Court for the Southern District of New York. The case was subsequently taken over by the U.S. Attorneys for the Southern Districts of Texas and New York, and was then transferred to Texas.
The action relates to the mortgage companies’ and their CEO’s participation in the Department of Housing and Urban Development’s (HUD) Federal Housing Administration (FHA) mortgage insurance program. The Government alleged that the companies and their CEO violated various FHA guidelines in underwriting and originating FHA loans (reckless underwriting), and in certifying compliance with the FHA program (annual certifications).
In November 2016, a jury awarded the Government over $92 million in damages based on the FCA and FIRREA claims. The defendants subsequently filed a renewed motion for judgment as a matter of law (JMOL) and for a new trial. The Government moved for treble damages under the FCA and civil penalties under the FCA and FIRREA.
On September 14, U.S. District Judge George C. Hanks, Jr. denied the defendants’ motions and granted the Government’s motion for damages, penalties, and judgment. Judge Hanks found that sufficientt evidence was presented to warrant treble damages and civil penalties. He awarded $256,837,929 in FCA treble damages and $11,920,000 in civil penalties for the recklesss underwriting claims, and $22,110,396 in FCA treble damages and $1,030,000 in civil penalties for the annual certification claims. He also awarded $2,200,000 in FIRREA penalties against each of the three defendants, including the CEO.
The court ruled that defendants’ actions justified damages and civil penalties on the “high end” of the FCA’s and FIRREA’s spectrum because it found that defendants “engaged in a prolonged consistent enterprise of defrauding the United States,” rather than “isolated or occasional mistake[s].” Judge Hanks also found that defendants’ actions amounted to a “campaign of subterfuge and noncompliance,” and defendants Direct Endorsement (DE) Program was “custom-designed to flout” the FHA program itself.