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US sues Bank of America for mortgage fraud; ex Goldman & Sachs, two years in jail

Thursday, October 25th 2012 - 06:39 UTC
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US Attorney Preet Bharara accuses a bank subsidiary of selling toxic home loans to Fannie Mae and Freddie Mac. US Attorney Preet Bharara accuses a bank subsidiary of selling toxic home loans to Fannie Mae and Freddie Mac.

Bank of America is being sued for 1bn dollars for alleged mortgage fraud. The civil lawsuit has been brought by the US Attorney Preet Bharara, the top federal prosecutor in Manhattan, New York.

He accuses Countrywide Financial, which Bank of America bought in 2008, of selling thousands of toxic home loans to Fannie Mae and Freddie Mac. Fannie Mae and Freddie Mac are government agencies that support the US mortgage market.

Countrywide is accused of running a trading scheme from 2007 to 2009 that was deliberately designed to process loans at high speed without checks on their quality.

Mr Bharara said: “This lawsuit should send another clear message that reckless lending practices will not be tolerated”. He added that Countrywide's practices were “spectacularly brazen in scope”.

The legal action against Bank of America follows similar moves by the US government earlier this month against Wells Fargo and JP Morgan Chase. On 2 October, JP Morgan was sued for allegedly defrauding investors who lost more than 20bn on mortgage-backed securities sold by Bear Stearns.

JP Morgan, which bought the investment bank in March 2008, said the allegations related to actions at Bear Stearns prior to its takeover. Meanwhile, on 10 October, Wells Fargo was also sued by federal authorities for alleged mortgage fraud.

The US government alleges that Wells Fargo lied about the quality of mortgages it handled, leading to huge losses for the Federal Housing Administration. Wells Fargo has denied the allegations.

In relates news former Goldman Sachs board member who was found guilty of four criminal counts of insider trading has sentenced to two years in jail.

Rajat Gupta, 63, had leaked boardroom secrets to Raj Rajaratnam, a former hedge fund manager now serving 11 years in prison. US District Court Judge Jed Rakoff also ordered Gupta to pay a 5m dollars fine.

Gupta said he regretted the impact of the case on his family and friends. Reading from a statement, he said: “The last 18 months have been the most challenging period of my life since I lost my parents as a teenager.”

He added: I've lost my reputation I built for a lifetime. The verdict was devastating”.

During the court case, which resulted in Gupta being found guilty in June, the jury heard secret recordings of conversations between him and Rajaratnam.

The trial focused on a phone call made to Rajaratnam on 23 September 2008, minutes after Gupta had listened to a private conference call discussing a 5bn investment in Goldman Sachs by Warren Buffett's company Berkshire Hathaway. The deal was due to be made public after stock markets closed that day.

According to phone records, Rajaratnam bought 40m in Goldman Sachs stock moments after the phone call, earning nearly one million dollars.

Gupta, who was born in India and educated at Harvard, also served on the boards of Procter & Gamble, the Rockefeller Foundation and the Bill and Melinda Gates Foundation.
 

Categories: Economy, Politics, United States.

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  • British_Kirchnerist

    Victory to the US (against these bankers!)

    Nov 02nd, 2012 - 01:06 am 0
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