Before Wells Fargo & Co. agreed Friday to pay $108 million to settle a federal whistleblower case, the bank mounted "a Stalingrad defense," fighting for five years after six co-defendant banks had repaid $161.7 million in mortgage refinancing fees illegally billed to the nation's veterans, said whistleblower attorney James Butler Jr.
Faced with an August trial in federal court in Atlanta, Wells Fargo surrendered, settling the 11-year-old case with whistleblowers Victor Bibby and Brian Donnelly, both formerly executives at a now-defunct Atlanta mortgage company that specialized in arranging government-guaranteed loans to military veterans.
The case, filed in 2006, remained under seal for five years until federal prosecutors decided not to intervene. It was unsealed in 2011 when Butler and his firm, Butler Wooten & Peak, joined with Atlanta attorney Marlan Wilbanks of Wilbanks & Gouinlock to recoup what they contended were hundreds of millions of dollars in unauthorized legal fees the banks had hidden in mortgage refinance statements. Bibby and Donnelly claimed the banks had illegally added the unauthorized fees to veterans' mortgage refinance costs in violation of agreements with the federal government, which partially guaranteed the loans.
The loans at the center of the case were "Interest Rate Reduction Refinancing Loans" established by Congress to allow veterans with existing home loans to refinance and take advantage of lower interest rates.
In settling, Wells Fargo admitted no wrongdoing. Tim Sloan, Wells Fargo's chief executive officer, said Friday the bank decided to settle "to put the matter behind us."
Calling the case "long and hard-fought," Butler Wooten partner Brandon Peak said the whistleblowers could and deserve to recover as much as 30 percent of the settlement with Wells Fargo. "These relators [Bibby and Donnelly] have spent 11 years of their lives working on this case," he said. "They have given up their ability, essentially, to work in the mortgage industry, once the case was unsealed. ... Our clients are proud that, by bringing this to light, it would stop vets from being illegally charged on these loans."
On Friday, Wilbanks praised Bibby and Donnelly, whom he has represented since 2006, for pursuing the case without the cooperation of the U.S. Department of Veterans Affairs after federal prosecutors declined to intervene. "Not only were taxpayers being ripped off, the veterans themselves were being ripped off at the closing table on these loans," the lawyer said. "This is a textbook example of why the False Claims Act works. When the government doesn't go forward with a case or doesn't want to spend any resources on a case, then citizens like our clients can pick up the torch and go forward at their own risk and at their own expense."