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How Bank of America Covered Up Fraud by Silencing Whistleblowers

Countrywide made life hard for an internal investigator, and a court ruled that when BofA took over, she was illegally fired in retaliation.

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Bank of America says issues related to Countrywide are old news. Last year a spokesman described fraud claims by state officials as “water under the bridge,” noting that the bank settled with dozens of states soon after buying Countrywide.

When federal officials announced Foster’s victory last week, Bank of America dismissed the case as “an old matter dating from 2008.”

Accounts from Foster and other former employees, however, put the bank in an uncomfortable position. These accounts, as well as lawsuits pushed by investors, borrowers and government agencies, raise questions about how diligently the bank has worked to clean up the mess caused by Countrywide — and whether the bank has tried to curtail its legal liability by papering over the history of corruption at its controversial acquisition.

In Foster’s case, the  Labor Department notes [4]that two senior Bank of America officials — not former Countrywide executives — made the decision to fire her.

The agency says the investigations led by Foster found “widespread and pervasive fraud” that, Foster claimed, went beyond misconduct committed at the branch level and reached into Countrywide’s management ranks.

Foster told the agency that instead of defending the rights of honest employees, Countrywide’s employee relations unit sheltered fraudsters inside the company. According to the Labor Department, Foster believed Employee Relations “was engaged in the systematic cover-up of various types of fraud through terminating, harassing, and otherwise trying to silence employees who reported the underlying fraud and misconduct.”

In government records and in interviews with  iWatch News , Foster describes other top-down misconduct:

  • She claims Countrywide’s management protected big loan producers who used fraud to put up big sales numbers. If they were caught, she says, they frequently avoided termination.
  • Foster claims Countrywide’s subprime lending division concealed from her the level of “suspicious activity reports.” This in turn reduced the number of fraud reports Countrywide gave to the U.S. Treasury’s Financial Crimes Enforcement Network.
  • Foster claims Countrywide failed to notify investors when it discovered fraud or other problems with loans that it had sold as the underlying assets in “mortgage-backed” securities. When she created a report designed to document these loans on a regular basis going forward, she says, she was “shut down” by company officials and told to stop doing the report.

In Foster’s view, Countrywide lost its way as it became a place where everyone was expected to bend to the will of salespeople driven by a whatever-it-takes ethos.

The attitude, she says, was: “The rules don’t matter. Regulations don’t matter. It’s our game and we can play it the way we want.”

Bank of America declined to answer detailed questions about Foster’s allegations. Simon, the bank spokesman, told iWatch News “we are certain” that Foster’s claims “were properly and fully investigated by Countrywide and appropriate actions were taken.”

And not all former Countrywide workers say that fraud was condoned by management.

Frank San Pedro, who worked as a manager within the investigations unit from 2004 to 2008, told the Financial Crisis Inquiry Commission the company worked hard “to root out all the fraud that we could possibly find. We continued to get better and better at it.”

He said most of the fraud was “external” — outsiders trying to rip off the lender — and in-house sales staffers who tried to push through fraudulent loans “seldom got away with it.”

Gregory Lumsden, former head of Countrywide’s subprime division, Full Spectrum Lending, says there are thousands of ex-Countrywiders who can vouch for the company’s honesty. When bad actors were caught, he says, Countrywide took swift action.

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