Whistleblower suit says Wachovia defrauded government

In one of our recent posts, we discussed the New York False Claims Act and the protections and incentives it provides to qui tam plaintiffs who blow the whistle on companies that defraud the government.

The recent unsealing of a federal False Claims Act lawsuit offers a timely follow-up to our discussion of whistleblower rights. In 2011, two qui tam plaintiffs blew the whistle on Wachovia, alleging that its investment bank fraudulently accepted billions of dollars from U.S. government agencies. According to the lawsuit, Wachovia, which Wells Fargo bought in an emergency deal in 2008, received the bailout money while falsifying certifications of financial statements, covering up “mismanagement and fraudulent practices,” and engaging in dubious banking practices.

The complaint also alleges that Wells Fargo failed to “come clean” about the alleged fraud after buying Wachovia.

As we’ve said before, the government can join a qui tam lawsuit. In this case, however, the government opted out, and the plaintiffs are independently moving forward with their complaint on the government’s behalf. The plaintiffs stand to receive as much as 30 percent of any damages awarded in connection with the claim.

One of the whistleblowers is a former Wachovia controller. He claims that he alerted his superiors to inappropriate valuations, but the superiors did nothing, and eventually he lost his job.

The other whistleblower was formerly a mortgage loan officer at Golden West Financial, which was purchased by Wachovia in 2006. He claims that Golden West’s internal controls and underwriting practices were ineffective and inadequate. In 2009 he appeared on “60 Minutes,” alleging that Golden West’s lending practices were improper.

New Yorkers with whistleblower concerns may want to follow this case as it progresses. 

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