NEW YORK–A federal appeals court here has dealt a setback to efforts by the government to hold Bank of America accountable for practices that contributed to the financial crisis.
The court overturned a $1.27-billion penalty the bank had been ordered to pay in the so-called “hustle case.”
The three-judge panel ruled that federal prosecutors had failed to prove that Countrywide Mortgage, a unit of Bank of America, had defrauded Fannie Mae and Freddie Mac when it sold the two secondary market companies loans that later went sour.
According to the ruling, while Countrywide employees may have sold loans in 2007 and 2008 that were not of the quality that was promised in the contracts with Fannie and Freddie, there was no evidence that these sales — part of a program known internally at Countrywide as “hustle” — were part of a deliberate deception.
“The trial evidence fails to demonstrate the contemporaneous fraudulent intent necessary to prove a scheme to defraud,” Judge Richard C. Wesley wrote in a 31-page ruling.
The case is also notable because it is one of the few where the government also sought to hold an individual responsible for the bad loans, in this case Rebecca Mairone. An earlier court had ordered Mairone to pay a $1-million fine, which the appeals court has also ruled she does not have to pay.
The ruling does not affect related penalties BofA has been ordered to pay. Bank of America has spent $37 billion on litigation expenses, most of it related to the legal fallout from the financial crisis, including funds paid to NCUA.