U.S. judge weighs penalties after Bank of America fraud verdict

Thu Dec 5, 2013 5:22pm EST
 
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By Nate Raymond

NEW YORK (Reuters) - A U.S. judge is considering an alternative that could result in Bank of America Corp paying much less than the $863.6 million the government is seeking as a penalty for the sale of defective mortgages before the financial crisis.

At a hearing on Thursday, U.S. District Judge Jed Rakoff in Manhattan asked the bank and the Justice Department to brief him on the alternative, which is based on the grains rather than the losses resulting from the sales.

The hearing followed a jury verdict on October 23 in which a federal jury found Bank of America liable for fraud for selling substandard mortgage to government sponsored mortgage finance companies Fannie Mae and Freddie Mac.

The verdict was a big win for the government in its efforts to hold Wall Street accountable for the financial crisis, and the Justice Department has requested a penalty based on the gross losses Fannie Mae and Freddie Mac incurred.

But at Thursday's hearing Rakoff said he wanted a "more full presentation" on how to calculate the penalty based instead on how much Countrywide gained through the fraud, calling it a simpler approach.

The judge said that his comments should not signal how he will ultimately rule. Rakoff said he would issue a decision sometime in February.

A penalty based on gains rather than losses would likely be significantly smaller than prosecutors in U.S. Attorney Preet Bharara's office have requested.

Evidence the government presented at trial indicated that Countrywide made $165.2 million selling the loans.   Continued...

 
Customers use ATMs at a Bank of America banking center in New York's financial district January 17, 2013. REUTERS/Brendan McDermid