DOJ Reclaims Over $15 Billion in Goldman, Morgan Stanley and Wells Fargo Cases

March 30, 2017 by Amy E. Martinez, Esq.

In a statement issued on December 14, the United States Department of Justice (DOJ) announced it had garnered $15.3 billion from criminal and civil litigation in 2016. An estimated $6.8 billion of which came collectively from Goldman Sachs, Morgan Stanley, and Wells Fargo, in suits related to the historic economic downturn of the early 2000’s. The DOJ’s Criminal Division collected $3 billion in penalties, while the Civil Division amassed $12 billion—over half of which derived from only three economic crisis investigations settled over the course of 2016.

The DOJ had claimed that both Goldman Sachs Group Inc. and Morgan Stanley illegally deceived investors purchasing mortgage-backed securities. The subsequent prosecution of the two banks’ improper actions resulted in Goldman settling for $2.96 billion, as part of a total $5 billion multi-state deal, with Morgan Stanley paying $2.6 billion and $550 million settlements to the DOJ and New York state, respectively.

The Goldman and Morgan Stanley settlements were preceded by larger financial crisis-related payouts. Earlier mortgage-backed securities settlements involved an investigation into JPMorgan Chase & Co., resulting in a $13 billion payment to the federal government, as well as one in which Bank of America Corp. agreed to pay a total of $17 billion. These cases were enabled by the federal government’s reimplementation of the 1980’s Financial Institutions Reform, Recovery and Enforcement Act (FIRREA), which permits the DOJ to seek civil penalties when criminal laws are violated.

In the Wells Fargo case, the financial institution was alleged to have wrongfully reported to the U.S. Department of Housing and Urban Development (HUD) between May 2001 and December 2008. The bank assured those agencies that particular home mortgage loans qualified for Federal Housing Administration insurance, when in fact, they did not. Wells Fargo’s intentionally misleading reports led HUD to pay out hundreds of millions of dollars in claims for loans that subsequently went into default. The $1.2 billion transaction allowed Wells Fargo to avoid liability under both FIRREA and False Claims Act (FCA) regulations.

The DOJ’s December 14 statement further revealed that the agency had collected approximately $3.6 billion from FCA settlements in 2016—bringing the net recovery under the government contract fraud legislation to $31 billion over the course of Obama’s presidency. This sum accounts for nearly sixty percent of the total assets recovered since the FCA was reconstituted in the early 1980s.

The 2016 collection total additionally included an undetermined amount retrieved via settlements and court orders from years past. U.S. Attorney General Loretta Lynch claimed the reclaimed funds represented a positive return on investment of the nearly $3 billion aggregate annual expenditure by U.S. attorney’s offices, the DOJ Civil and Criminal branches, and related agencies to pursue these cases.

The recovered funds offer justification for the DOJ’s efforts in requesting additional funding. The DOJ departments that conduct litigation requested a budget increase of $73 million for 2017—a marginal four percent increase over what was allotted to the DOJ in 2016. U.S. Assistant Attorney General Leslie Caldwell issued a statement suggesting that certain DOJ divisions might benefit from enhanced training resources, but she later apologized for those assertions.