Justice Dept Wants $2.1 Billion Fine From Bank of America

Justice Dept Wants $2.1 Billion Fine From Bank of America

The U.S. Department of Justice has decided it will seek to claw back $2.1 billion from Bank of America Corp (NYSE:BAC) related to a mortgage fraud case it won against the bank in October last year. The DoJ had initially just been seeking an $864 million fine from Bank of America, but it decided the fine/disgorgement should be based on BofA’s total revenue from the fraudulent activity. The $864 million figure was based just on the losses suffered by Fannie Mae / Federal National Mortgage Association (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC).

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The DoJ and Bank of America Corp (NYSE:BAC) have been negotiating for almost three months now since the decision was rendered, and the government’s announcement has to be considered a major setback for the banking titan. It also significantly increases the chances that BofA will take its chances on appeal instead of accepting the now much-larger fine and closing the case.

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DoJ October statement

U.S. Attorney Preet Bharara released a statement regarding Bank of America Corp (NYSE:BAC)’s acquisition Countrywide and that insitution’s fraudulent practices after the government won the case in October. “In a rush to feed at the trough of easy mortgage money on the eve of the financial crisis, Bank of America purchased Countrywide, thinking it had gobbled up a cash cow.  That profit, however, was built on fraud, as the jury unanimously found.”

Legal experts say that basing a penalty on the gross gains rather than losses is the typical procedure for the DoJ in these kind of fraud cases.

Bank of America planning to appeal

After the October decision, Bank of America Corp (NYSE:BAC) announced it was considering an appeal. “The jury’s decision concerned a single Countrywide program that lasted several months and ended before Bank of America’s acquisition of the company. We will evaluate our options for appeal.”

Analysts point out, however, that Bank of America Corp (NYSE:BAC) is in a tough spot, both legally and in terms of public relations. The PR situation makes a long, drawn-out appeal of the case somewhat less likely, but $2.1 billion might be more than BofA is willing to cough up.

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