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Citigroup Whistleblower Exposes Mortgage Fraud Against Government Entities and Recovers Huge Payoff

Thumbnail image for Thumbnail image for Thumbnail image for Thumbnail image for above-the-bar-logo.jpgCitigroup just settled a whistleblower lawsuit with the U.S. Justice Department this week for alleged violations of the False Claims Act. Sherry Hunt, a quality assurance manager in Citigroup’s Missouri office, filed the whistleblower suit last year in the U.S. District Court in the Southern District of New York. Citigroup has agreed to pay the government $158.3 million to settle, of which Hunt will receive $31 million. If you know of any fraud being committed against the government at your place of employment, call our Whistleblower Attorneys to figure out if you have an action under the False Claims Act.

Hunt’s complaint alleged that Citigroup “defrauded, falsified information or misled federal government entities” by misleading it into insuring thousands of risky home loans that it knew did not qualify for insurance from the Federal Housing Agency (“FHA”). Hunt charged New York based Citigroup with vouching for many mortgages which had many defects. For example, some of these defects included deficient income documentation, incomplete borrower job histories, improper appraisals, closing paperwork errors, missing credit reports, and miscalculated maximum mortgage amounts.

The governments’ allegations also charged Citgroup with not complying with FHA requirements such as failing to report underwriting flaws and other problems. This resulted in costing taxpayers about $200 million in claims.

In settling, Citigroup has accepted responsibility for its alleged conduct of improperly certifying loans for insurance and failing to comply with disclosure rules which dates back to 2004. Citigroup may also be forced to buy back the substandard mortgages that it sold to government controlled Fannie and Freddie. The Justice Department has also reserved the right to seek criminal and other charges.

The whistleblower in this case, Hunt, began working at Citigroup in 2004. As she noticed the problems getting worse, she complained to human resources. However, nothing was done. In fact, she alleged in her complaint that senior bank personnel tried to pressure quality control manager to keep the number of defects in the mortgages down. Hunt has stated that she “came forward out of passion for what I do, and what I chose for a career, and I did it for my children, my grandchildren . . . hoping that they can have the same opportunities that I had when I bought my first house and started my family.”

This case is a perfect example of why the qui tam whistleblower statute is one of this country’s most effective tools in fighting fraud. Even though Hunt complained, nothing was done until her lawsuit was filed. The whistleblower statute allows a private individual with knowledge of fraud being committed against the government to bring an action on behalf of the government. Depending on whether the government intervenes in the action, the whistleblower can receive between 15% to 30% of the government’s recovery.

It is a shame that Citigroup was engaging in such fraudulent conduct, even in 2011, given the country’s recent housing crisis and the government’s bailout using taxpayer monies. Hunt is a great example of how one person observing fraud can make a difference. If you have noticed fraud against the government at your place of work, remember that it’s your taxpayer monies that are being stolen. Call our Whistleblower Attorneys at Villanueva & Sanchala at (800) 893-9645 to help you determine if you have an action under the False Claims Act.


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