Consumer Fraud

SCOTUS Revives Whistleblower Case Against Wells Fargo In Light of Escobar Ruling

Wells Fargo fraud SCOTUS Revives Whistleblower Case Against Wells Fargo In Light of Escobar RulingThe U.S. Supreme Court on Tuesday, Feb. 21 revived a long-running whistleblower lawsuit against Wells Fargo by remanding it to the U.S. Second Circuit Appeals Court, which last year affirmed a lower court’s ruling dismissing the case.

The case was filed by Robert Kraus and Paul Bishop, former officials of two banks Wells Fargo acquired. Mr. Kraus and Mr. Bishop brought the complaint in 2011 under the whistleblower provisions of the False Claims Act, which allows private parties to sue on behalf of the government in cases of suspected fraud targeting federal agencies and programs.

Mr. Kraus is former controller for Wachovia Bank living in North Carolina and Mr. Bishop was formerly employed by Golden West as a mortgage loan officer. Wachovia acquired Golden West in 2006, and Wells Fargo acquired Wachovia in 2008.

The plaintiffs allege that Wachovia, and subsequently Wells Fargo, falsely certified their compliance with various laws and regulations while taking low-rate loans from the Federal Reserve’s discount window. The Fed allows banks to borrow at low rates, which helps stabilize the financial system. The banks’ alleged noncompliance with federal regulations amounted to a submission of false claims, the whistleblowers allege.

The U.S. government declined to intervene in the case, but the complaint proceeded until a federal court dismissed the case in 2015. The Second Circuit Appeals Court upheld the lower court’s decision in 2016.

In its decision to revive the case by sending it back to the Second Circuit Appeals Court, the Supreme Court referenced its ruling last June in Universal Health Services, Inc. v. United States ex rel. Escobar. SCOTUS held a defendant’s failure “to disclose noncompliance with material statutory, regulatory, or contractual requirements” may provide the grounds for a False Claims Act lawsuit, but that materiality must be considered.

“What matters is not the label the Government attaches to a requirement, but whether the defendant knowingly violated a requirement that the defendant knows is material to the Government’s payment decision,” wrote Justice Clarence Thomas in the court’s unanimous ruling.

Sources:
Bloomberg
Charlotte Observer
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