"Whistleblower suit targets accounting, controls in Wachovia’s investment bank"

"A newly unsealed federal lawsuit alleges Wachovia’s investment bank violated accounting rules and skirted internal controls to pursue short-term profits, benefiting senior management at the expense of the former Charlotte-based bank’s financial health.

Two whistleblowers, including a former Wachovia controller who lives in Union County, filed their lawsuit on behalf of the federal government, alleging the bank defrauded U.S. agencies that loaned money and provided other assistance to the bank in the financial crisis.

...The suit – filed against Wells Fargo, which bought Wachovia in 2008 – is the latest legal action to take on banks for their role in the global financial meltdown.

...The suit says Wachovia defrauded the government of billions of dollars when it accepted payment from various federal programs while engaging in unsound banking practices, making false certifications about its financial statements and concealing “mismanagement and fraudulent practices.” Later, Wells Fargo did not “come clean” about the fraud it inherited, the suit claims.

The government “should do right by the U.S. taxpayer and recover monies from Wachovia and Wells Fargo under the U.S. False Claims Act for having bailed them out under outrageously false and fraudulent pretenses,” the complaint states.

Wells Fargo in a statement said the bank “continues to believe these claims are without merit.”

...The case was filed in U.S. District Court for the Eastern District of New York by Robert Kraus, a former Wachovia controller who lives in Marvin, and Paul Bishop, a former Golden West mortgage loan officer who lives in California’s Bay Area.

In 2010, the Observer wrote about an earlier lawsuit Kraus filed against Wachovia, as well as his struggles finding work in the financial industry after he said he was forced out of the bank.

...The bank has previously said Kraus’ allegations of improper business conduct were “simply unfounded.”

Bishop gained national attention in 2009 when CBS’ “60 Minutes” aired a program on his allegations of improper lending practices at Oakland, Calif.-based Golden West. In a 2008 lawsuit, Bishop said he threatened to warn Wachovia about Golden West’s practices before the merger closed but instead lost his job.

...The United States in July declined to officially join the suit but said the whistleblowers could continue the case on their own. The plaintiffs filed a motion this week saying they had no objection to it being unsealed.

...The suit says Wachovia, in violation of federal law and proper accounting practices, routinely placed loans in an off-the-balance-sheet entity called the College Street Funding Master Trust, known internally as the Black Box. Wachovia’s former headquarters was on College Street in Charlotte.

The goal was to skirt regulatory constraints on the amount of loans the bank could keep on its balance sheet.

...The loans were equal to about 12.75 percent of the total equity of Wachovia’s banking subsidiary.

...Kraus, according to the suit, was told by Malter and two other Wachovia executives – Bill Green and Stephen Nelson – not to discuss the existence of the Black Box with federal regulators or other bank employees.

...The suit alleges senior management violated laws and regulations in pursuit of short-term profits, which produced higher bonuses for executives and top bankers “at the expense of the bank’s long-term financial health, shareholders and the financial well-being of the vast majority of its shareholders and its employees.”

According to the suit, Kraus in April 2006 brought his concerns to the head of Wachovia’s corporate and investment bank, Steve Cummings. Months later, he was told he was being terminated, the suit states..."

"Kraus, who worked at the bank in 2005 and 2006, contends Wachovia investigated his concerns before pushing him out in 2006 but wouldn’t let him see the report of its findings, according to the lawsuit.

Recently, Kraus said negotiations for a loan modification on his home led him to a Wells Fargo representative who told him there was no evidence that such a report existed, the suit says.

Kraus filed his lawsuit four years after leaving Wachovia. In an interview, he says his family and finances have suffered because he has not been able to find work in banking since then. He believes he has been “blacklisted,” in the industry, according to his complaint."


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