Last Wednesday, U.S. District Judge Victor Marrero approved a settlement in which Citigroup Inc., the nation’s third-largest bank, agreed to pay $158.3 million to settle claims that it defrauded the federal government by misleading the government into insuring high-risk home mortgages.
The settlement resolves a lawsuit against Citigroup brought by a whistleblower under the federal False Claims Act. The whistleblower, Ms. Sherry Hunt, a quality control manager at Citibank, is entitled to collect $31 million of the settlement amount for her role in exposing the fraudulent conduct.
According to the lawsuit, Citigroup falsely certified that many of its mortgage loans qualified for insurance under the FHA program of the Department of Housing and Urban Development (HUD). Among Hunt’s allegations was the claim that Citibank employees erased the records of approximately 1,000 loans that a Citibank quality-control team had designated as potentially fraudulent. In violation of HUD requirements, these defects that the quality control identified were not included in reports to the government.
According to government investigators, 30% of the HUD-insured mortgaged made or underwritten by Citibank since 2004 have gone into default, resulting in a nearly $200 million loss to the government. In its complaint against Citibank, the government noted that “a substantial percentage of those claims resulted from loans that were ineligible for FHA insurance and never should have been insured.”
As part of the settlement agreement, CitiMortgage, a subsidiary of Citibank “admits, acknowledges and accepts responsibility” for having misled the government into insuring high-risk home mortgages.
Since the False Claims Act was amended in 1986, more than $34 billion of fraud against the government has been recovered. According to the U.S. Attorney’s office in the Southern District of New York, the $158.3 million settlement is the second-largest amount ever paid in a mortgage fraud case.
The whistleblower, Ms. Hunt, is still employed by Citigroup and is now a vice president of quality assurance. Commenting on her role as a whistleblower, Ms. Hunt said:
“I had to do something to stop them . . . I felt that if I were brave enough to come forward and take a stand, then maybe others would, too.”
The Employment Law Group® law firm focuses on the area of whistleblower protection law, and has helped many clients come forward to file suit against employers that fraudulently billed the U.S. government and has helped whistleblowers protect their careers.