Wells Fargo & Co (NYSE:WFC) said the U.S. Department of Justice might have added its executive as a defendant in retaliation for the bank bringing settlement talks to an end.

Wells Fargo

Wells Fargo & Co (NYSE:WFC) questioned in a court filing the Department of Justice’s motives in a federal court motion to add its employee Kurt Lofrano as a defendant.

Wells Fargo facing federal investigation

As reported earlier, Wells Fargo & Co (NYSE:WFC) is facing a federal investigation related to the sales of mortgage-backed securities. People familiar with the situation said authorities are investigating whether the bank violated the Financial Institution Reform and Recovery Act (FIRREA), which allows the government to file a lawsuit against federally insured entities. The law has a 10-year statute of limitations.

U.S. attorneys in San Francisco have been examining for over a year whether Wells Fargo violated the FIRREA that allows the government to sue for fraud affecting a federally insured financial institution.

FIRREA was passed in 1989 in response to the savings-and-loan crisis but had largely collected dust until U.S. Attorney Preet Bharara’s office resurrected it in 2010. The law allows and permits the government to go after all kinds of malfeasance that some people thought that the government couldn’t go after before.

Justice Department’s use of FIRREA was called into question when three banks facing cases under the law – Wells Fargo & Co, Bank of America Corp (NYSE:BAC) and The Bank of New York Mellon Corporation (NYSE:BK) – decided to fight their cases in court rather than settle.

Executive’s inclusion may be in retaliation

Wells Fargo is accused of misleading the U.S. Department of Housing and Urban Development into believing defective home loans qualified for insurance from the Federal Housing Administration, costing the government hundreds of millions of dollars.

According to Joseph Ax of Reuters, the country’s largest mortgage lender said it told the government it would no longer engage in settlement negotiations on October 29, after months of discussions.

The Justice Department said Lofrano, who was Wells’ vice president for quality control from 2002 to 2010, played a “critical role” in the bank’s alleged failure to report the loans’ flaws. He is still employed at the bank.

However, Wells Fargo & Co (NYSE:WFC) has denied the fraud allegations, and it questions why Lofrano was added to the suit a year after it was filed, but three days after Wells pulled out of settlement negotiations.