Bank of America ducks 1.27-billion penalty over 2008 crisis

A US appeals court has thrown out a $1.27 billion penalty handed down to Bank of America for its actions that led up to a nationwide financial crisis and housing meltdown in 2008.

At a 2013 trial, a jury concluded that the Countrywide Financial Corp, which the bank bought in July 2008, committed mail and wire fraud in late 2007 and 2008.

According to the jury’s verdict, Bank of America was liable for fraud over a mortgage program named "Hustle" run by the Countrywide.

The US Justice Department claimed that the Countrywide, through Hustle, had sold thousands of toxic loans to giant government-sponsored mortgage financers.

The Countrywide had churned up those shoddy mortgages with a focus on quantity, not quality, according to a civil lawsuit lodged by the Manhattan US attorney’s office against Bank of America in 2012.

The unit then misrepresented those loans when selling them to giant Fannie Mae and Freddie Mac, which were supposed to be propped up by government money in the financial crisis, the lawsuit added.

As a consequence, US District Judge Jed Rakoff finally imposed a $1.27 billion penalty on Bank of America in 2014 and ordered Rebecca Mairone, a former midlevel Countrywide executive, to pay $1 million.

However, the 2nd US Circuit Court of Appeal in Manhattan ruled on Monday that the bank cannot be held liable due to a lack of sufficient evidence, a verdict seen as a major blow to the government.

In a 3-0 decision, US Circuit Judge Richard Wesley said the 2013 Jury’s findings that the Hustle program rewarded staff for generating more mortgages and emphasizing speed over quality cannot be substantiated.

"The trial evidence fails to demonstrate the contemporaneous fraudulent intent necessary to prove a scheme to defraud through contractual promises," Wesley wrote.

“We conclude the evidence is insufficient to sustain the jury’s verdict,” the 2nd Circuit said.

“The government did not prove — in fact, did not attempt to prove — that at the time the contracts were executed Countrywide never intended to perform its promise of investment quality. Nor did it prove that Countrywide made any later misrepresentations ... as to which fraudulent intent could be found,” it added.

Bank of America, which had previously argued that the 2013 trial was unfair, said in a statement Monday that it was pleased with the ruling.

“We’re very pleased with the way the circuit ruled,’’ said Michael Hefter, one of the lawyers representing Mairone. “It’s a vindication for our trial team and for Ms. Mairone.’’

Countrywide was one of many mortgage firms selling risky mortgages to Fannie Mae and Freddie Mac before the housing collapse.

So far, Bank of America, JPMorgan Chase and other big Wall Street banks have paid out billions of dollars in legal settlements for the roles that had in the financial crisis.

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