Lawyers in our firm are currently investigating how state pension funds have been affected by fraud committed by several banks on federal home insurance programs. Recent False Claims Act (FCA) cases which allow a Plaintiff with original knowledge to sue on behalf of the federal government have brought in a recovery of over $1.6 billion in settlements. These settlements result in the Plaintiff obtaining a fee of 15%-30% of the amount the federal government recovers. There are potentially billions of dollars not yet collected by state pension funds due to the underlying fraudulent activity conducted by Bank of America, Citigroup, Deutsche Bank, and Flagstar. The state pension funds were potentially ripped off by these companies and others who knew the ratings of mortgage-backed securities sold by the companies were inaccurate.
If companies sold mortgage-back securities to state pension funds when they knew their ratings were incorrect, they have committed a fraud on the taxpayers. Anyone with direct knowledge of this fraud can possibly recover millions of dollars on behalf of states that have a False Claims Act or on behalf of the federal government through the False Claims Act, a federal law. States without a False Claims Act are at a huge disadvantage compared to states which have the legal ability to recover millions from corporations that defraud them. Currently, the Alabama Senate has a bill proposed to give Alabama its own False Claims Act and to recover millions of taxpayers’ dollars.
States with a state-version of the False Claims Act should examine how their state pension funds were affected by Standard & Poor’s fraudulent ratings of mortgage-backed securities. Recently, as we mentioned in another section of this issue, several states and the Department of Justice sued Standard & Poor’s for its fraudulent ratings that misinformed and defrauded investors, companies, consumers, and the public at large. California filed a suit against Standard & Poor’s under its state False Claims Act with the theory that, had it not been for S&P’s fraudulent ratings, then the California teachers and public employees funds would have never purchased toxic assets like mortgage-backed securities.
A separate California False Claims Act lawsuit has recently been unsealed, alleging that county pension funds were defrauded when BNY Mellon used the least advantageous prices in foreign exchange transactions despite promising to use “best practices” in formulating such transactions. The Attorneys General of New York, Virginia, and Florida are also investigating allegations similar to those in the California lawsuit.
State pension funds were also potentially damaged by the recently discovered Libor scandal. Libor is a daily number submitted by banks across the globe to determine how much it costs for those banks to borrow money. Deliberate manipulation of the numbers submitted to Libor by several banks has potentially impacted financial contracts around the world. North Carolina’s State Treasurer, Janet Cowell, has stated:
The Libor scandal could be as big as the mortgage crisis settlement. This could be a really high impact situation, and we should be aggressive on this.
For reference, the mortgage crisis settlement that Treasurer Cowell mentioned resulted in a $25 billion settlement with state Attorneys General. Lawyers in our firm continue to vigorously investigate fraud against both the federal and state governments. We encourage anyone who knows of fraudulent activities to step forward. Potential whistleblowers have the right to not be retaliated against for doing the right thing and reporting the fraud they have witnessed. Anyone considering doing the right thing and blowing the whistle are strongly urged to seek legal advice before doing so. Lawyers at Beasley Allen are very familiar with the federal False Claims Act and its state counterparts and can guide whistleblowers along the process. If you have any information and would like to speak with a lawyer, contact Andrew Brashier, a lawyer in our firm’s Consumer Fraud Section, at Andrew.Brashier@BeasleyAllen.com, or at 1-800-898-2034 or 334-269-2343.
Sources: www.taf.org, Bloomberg and New York Times
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