The U.S. sued Bank of America in October for $1 billion, intervening in a whistle-blower action originally filed by a former Countrywide executive, Edward O’Donnell. The U.S. claimed Bank of America and Countrywide, which it acquired in 2008, sold thousands of defective loans, from 2007 to 2009, to Fannie Mae and Freddie Mac (FMCC:US), home-mortgage finance companies now under government control.
U.S. District Judge Jed Rakoff in Manhattan today dismissed claims against Bank of America filed under the federal False Claims Act. He allowed the case to go forward under the Financial Institutions Reform, Recovery and Enforcement Act of 1989, which was passed after the savings-and-loan crisis.
Rakoff announced his decision in a two-page order today. He said he will provide his reasons in a written opinion later.
The FIRREA claims that remain allow the government to seek to recover the amounts lost by Fannie Mae and Freddie Mac in civil penalties.
Lawrence Grayson, a spokesman for Charlotte, North Carolina-based Bank of America, said in a statement that the company is pleased the case has been narrowed.
“We continue to believe that neither Bank of America nor Countrywide defrauded Fannie Mae or Freddie Mac and we will address the remaining allegations as this matter proceeds,” Grayson said.
Ellen Davis, a spokeswoman for Manhattan U.S. Attorney Preet Bharara, had no comment on the ruling.
The case is U.S. v. Countrywide Financial Corp., 12-cv-1422, U.S. District Court, Southern District of New York (Manhattan).
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