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Citigroup Whistleblower Receives $31 Million Award as Part of False Claims Act Settlement

June 15th, 2012 · No Comments

Sherry Hunt, a whistleblower who helped the U.S. government recover $158.3 million, will receive a $31 million portion of the False Claims Act settlement paid by Citigroup Inc. (Citi). Hunt filed a complaint against Citi on August 5, 2011 in the U.S. District Court for the Southern District of New York, alleging that Citi knowingly and wrongfully approved loans for government insurance that did not qualify under Federal Housing Administration (FHA) rules.  The settlement was reached out of court one month after U.S. Attorney Preet Bharara in Manhattan agreed to join Hunt’s suit on behalf of the government.

In November 2004, Hunt started working for Citi as a vice president in the mortgage unit.  She supervised sixty-five mortgage underwriters responsible for protecting the company from fraud and bad investments. Citi vouched for the quality of loans sold by investors or approved investors for government mortgage insurance products.  For investors, this stamp of approval meant that if borrowers stopped paying, Citi stood behind the defaulted mortgages. But, according to Hunt, she began to notice a series of discrepancies by 2006.  Hunt claimed Citi was buying mortgages from outside lenders with doctored tax forms, phony appraisals and missing signatures.  Hunt identified and reported those defects in regular reports to her bosses.

Hunt believed that Citi incentivized employees to push faulty mortgages because their salaries depended upon a high percentage of approved loans. By late 2007, Hunt noticed that about sixty percent of the mortgages bought by Citi were missing some form of documentation. Hunt reported this to her boss, Richard Bowen III, and he sent an alert email to Citi executives in November 2007. However, his effort resulted in no noticeable changes, except that by April 1, 2008, after Hunt went public with her information, she had been transferred to the quality-control group where she went from overseeing sixty-five people to overseeing none.

While working at the quality control group, Hunt noticed further abusive practices.  In November 2009, Hunt found a list of about 1,000 possibly fraudulent loans, some that had been in the queue for more than two years without any action by the quality control group.  This group was supposed to investigate mortgages for fraud and within a month notify the FHA of any fraud found; no reports were sent to FHA until July 2011 when the U.S. Attorney’s Office in Manhattan issued a subpoena. Hunt also recalled an event in November 2010, when Ross Leckie, a senior director of CitiMortgage’s retail bank mortgage unit, sent an email ordering the quality control teams to drive down the defect rate on home loans by “brute force.”

Hunt reached her breaking point on March 29, 2011, when she officially filed a complaint with Citi’s human resources department and told them about the illegal activity she had uncovered.  Subsequently, on August 5, 2011, Hunt filed a false claims complaint in the U.S. district court, which ultimately resulted in Citi agreeing to settle out of court.

The Employment Law Group© law firm focuses in the areas of employment law and whistleblower protection law, has helped many clients file suit against employers that fraudulently billed the U.S. government, and has established favorable precedents under the retaliation provision of the False Claims Act.

Tags: False Claims Act · Report Fraud