NEW YORK — Bank of America has lost a major civil fraud case brought by the Justice Department, a major victory for the federal government as it continues to pursue cases stemming from the financial crisis.
A federal jury in Manhattan found Bank of America liable for faulty loans its unit Countrywide Financial Corp. sold to mortgage finance giants Fannie Mae and Freddie Mac.
The jury also found former Countrywide executive Rebecca Mairone liable, a spokeswoman for U.S. Attorney Preet Bharara said.
U.S. District Judge Jed Rakoff told lawyers he will determine the amount of any civil penalty later.
Countrywide, a mortgage lending powerhouse based in Calabasas, Calif., was acquired by Bank of America during the height of the housing crisis in 2008.
In a statement, Bharara said: “In a rush to feed at the trough of easy mortgage money on the eve of the financial crisis, Bank of America purchased Countrywide, thinking it had gobbled up a cash cow. That profit, however, was built on fraud, as the jury unanimously found.”
The courtroom victory could strengthen the federal government's hand as it confronts other major Wall Street banks for conduct that contributed to the financial crisis.
The Justice Department and JPMorgan Chase & Co. have been hammering out a $13 billion settlement that would resolve a raft of federal and state probes stemming from faulty mortgage investments that fueled the financial crisis.
“That's a very significant win for the government,” said Thomas Gorman, a partner at the law firm Dorsey Whitney in Washington. “This kind of verdict will only strengthen government's negotiating position and probably make other major banks re-evaluate what their position is.”
The suit filed by Bharara's office seeks $1 billion and accused Countrywide of saddling the U.S. government with faulty loans. The suit highlighted a program called “The Hustle” aimed at getting employees to churn out mortgages as fast as possible just as the housing market was failing.
Berkshire Hathaway Inc., the Omaha-based conglomerate headed by Warren Buffett, invested $5 billion in Bank of America in 2011 at 6 percent annual interest plus the right to buy its stock at about half the current price. Buffett has been supportive of Brian Moynihan, CEO of Bank of America, since then.
Staff writer Steve Jordon contributed to this report.