(Reuters) – BP Plc and Anadarko Petroleum Corp are liable and Transocean Ltd may be liable for civil damages under federal pollution laws over the catastrophic 2010 Gulf of Mexico oil spill, a U.S. judge ruled.

Wednesday’s decision by U.S. District Judge Carl Barbier in New Orleans lets the government pursue potentially tens of billions of dollars of civil penalties at a trial he is scheduled to oversee beginning on February 27.

Barbier said BP and Anadarko are liable under the Clean Water Act for oil discharged beneath the water surface because they owned a respective 65 percent and 25 percent of the Macondo well that blew out.

The judge ruled that BP and Anadarko are also liable under the Oil Pollution Act for oil removal costs and damages. He said their liability under both laws is “joint and several,” meaning that each could be responsible for the entire amount owed.

“Anadarko and BP were the ones directly engaged in the enterprise which caused the spill,” Barbier wrote.

“If Congress envisioned that the owner of the offshore facility would have to respond to an oil spill such as this one, then it is logical that they would also be the party upon whom the civil penalty is imposed,” he added.

Barbier also said Transocean, whose Deepwater Horizon drilling rig exploded, may be liable under the Clean Water Act as an “operator” of an offshore facility, but that there were “disputed facts” as to whether it met this definition.

He also said Transocean may be liable under the Oil Pollution Act for oil removal costs.

Wyn Hornbuckle, a spokesman for the U.S. Department of Justice, said that agency is reviewing the decision.

BP, Anadarko and Transocean representatives had no immediate comment or did not immediately respond to requests for comment.

Anadarko agreed in October to pay BP $4 billion to settle claims between the companies over the spill.

In exchange, BP agreed to indemnify Anadarko for most spill-related costs, though Anadarko remained liable for its share of fines payable to the government.

The Clean Water Act lets the government seek fines of up to $1,100 per barrel of oil spilled, or $4,300 per barrel if gross negligence or willful misconduct is found.

Assuming 4.1 million barrels were spilled as the government contends, that could result in a penalty of $4.5 billion, and potentially $17.6 billion if there is gross negligence.

Barbier declined to rule that BP and Anadarko could face unlimited liability under the Oil Pollution Act, as the government had requested.

The April 20, 2010 rig explosion caused 11 deaths, and led to the largest offshore oil spill in U.S. history.

BP is based in London; Anadarko in The Woodlands, Texas; and Transocean in Vernier, Switzerland.

The case is In re: Oil Spill by the Oil Rig “Deepwater Horizon” in the Gulf of Mexico, on April 20, 2010, U.S. District Court, Eastern District of Louisiana, No. 10-md-02179.

(Reporting By Jonathan Stempel; Editing by Richard Chang)

U.S. District Judge David Carter in Los Angeles on Tuesday
threw out the case more than six months after separately
awarding MGA roughly $310 million in damages, attorney’s fees
and other costs in a long battle over who owned rights to the
once billion-dollar Bratz doll line.

Carter’s decision in the antitrust case does not disturb his
Aug. 4, 2011 ruling, which followed a jury trial and which
Mattel is appealing.

In alleging violations of the Sherman antitrust law, MGA had
charged that the earlier litigation was part of Mattel’s costly
strategy to “litigate MGA to death” and ensure it could maintain
a dominant market share in fashion dolls.

But Carter said MGA essentially raised its antitrust claims
in the Bratz litigation, and that its allegations that Mattel’s
violations were continuing were not supported by facts.

“MGA’s current and prior claims are the same,” and the law
“bars a later claim that is based on allegations of misconduct
of which the claimant was previously aware and had alleged in
the prior case,” Carter wrote. He dismissed the case with
prejudice, meaning MGA cannot bring it again.

Isaac Larian, MGA’s chief executive, said his company plans
to appeal. “The judge dismissed on a technicality,” Larian said
in a statement. “We will pursue Mattel accordingly until they
stop their monopolistic behavior.”

Mattel spokesman Alan Hilowitz said the company is pleased
with the decision.

MGA is based in Van Nuys, California, and Mattel in El
Segundo, California.

The legal battle began in April 2004, when Mattel accused
MGA of copyright violations over the multi-ethnic Bratz line
after former Barbie designer and Bratz creator Carter Bryant had
jumped to MGA.

A jury awarded Mattel $100 million in 2008, but a federal
appeals court overturned that award in 2010. MGA then prevailed
in a retrial.

In afternoon trading, Mattel shares were up 2 cents at
$32.04 on Nasdaq.

The case is MGA Entertainment Inc v. Mattel Inc et al, U.S.
District Court, Central District of California, No. 11-01063.

(Reuters) – A firm run by John Paulson was sued on Tuesday by a prominent Miami investor who claimed the billionaire’s hedge funds failed to conduct proper due diligence on Chinese forestry company Sino-Forest Corp before buying shares, costing investors more than $460 million.

The lawsuit by Hugh Culverhouse, whose namesake father once owned the Tampa Bay Buccaneers team in the National Football League, is among the first targeting Paulson since his funds suffered large double-digit percentage losses in a disastrous 2011, even as U.S. stocks overall were little changed.

Those losses marked a reversal for Paulson, whose successful bet against subprime mortgage debt prior to the global financial crisis drove huge inflows into his firm Paulson & Co. That bet also helped make him the 17th-richest American, worth $15.5 billion according to Forbes magazine.

Paulson & Co in a statement said Culverhouse’s lawsuit lacks merit. Lawyers for Culverhouse did not immediately respond to requests for comment.

According to the complaint filed in the U.S. district court in Miami, Paulson’s Advantage and Advantage Plus funds by 2011 owned about 14 percent of Sino-Forest shares, a stake valued at about $800 million.

That bet blew up after the short-seller Muddy Waters LLC last June questioned Sino-Forest’s accounting and whether it inflated the value of its forestry assets. Sino-Forest shares fell 72 percent in the next two days in Toronto.

Sino-Forest has denied Muddy Waters’ accusations, but an internal company committee last month issued a report saying “there remain issues which have not been fully answered” about its business and relationships with land owners.

Culverhouse accused Paulson’s firm of “gross negligence” for having failed to analyze “the substantial risks of holding a near-billion-dollar investment in a forestry company based in China” before investing in Sino-Forest.

His lawsuit seeks class-action status for fund investors, as well as compensatory and punitive damages. The complaint does not say how much Culverhouse and other investors lost.

In its statement, Paulson said its funds lost just C$105 million (now US$105.3 million) on Sino-Forest because it had sold much of its stake from early 2010 to May 2011.

“As in all our investments, Paulson has access to the same information that everyone else in the securities markets does,” it said. “Like other public market investors, we must rely on audits and underwriter due diligence for comfort that financial statements and disclosures are accurate and reflect the true state of affairs at companies with publicly traded securities.”

The Advantage Plus fund fell about 52 percent last year, while the Advantage fund lost about 36 percent, people familiar with the funds have said.

The case is Culverhouse v. Paulson & Co et al, U.S. District Court, Southern District of Florida, No. 12-20695.

(Reporting By Jonathan Stempel and Katya Wachtel in New York; Editing by Bernard Orr)

The charges against the analyst, John Kinnucan of Portland, Oregon, were announced on Friday shortly before a former executive at flash memory chipmaker SanDisk Corp (SNDK.O: Quote, Profile, Research) pleaded guilty to conspiring to divulge company secrets to an unnamed consultant. A source close to the probe, who declined to be identified, said that consultant was Kinnucan.

Kinnucan appeared in U.S. District Court in Portland, Oregon, on Friday afternoon wearing light blue jail clothing. After a hearing that lasted about 20 minutes, Judge John Acosta ordered him held in custody until another hearing on Wednesday.

Between 2008 and 2010, investigators said, Kinnucan paid insiders with cash, trips and other benefits to get secret information, including sales trends for Apple Inc’s (AAPL.O: Quote, Profile, Research) iPhone.

Kinnucan then funneled the information to hedge fund traders in California and New York in exchange for hundreds of thousands of dollars, investigators said.

One person who allegedly got tips from Kinnucan was a former portfolio manager with Dallas-based Carlson Capital, a $6.5 billion hedge fund. Carlson issued a statement on Friday that the manager who had worked in New York had left the firm in March 2011 and had been there for just nine months. Carlson said it was cooperating with the probe and that it was not a target of the investigation.

The hedge fund did not identify the manager, but three sources familiar with the government’s investigation said that it was Dan Grossman. Sources said Grossman had retained a lawyer, but attempts to reach the lawyer were unsuccessful. Grossman has not been charged with any wrongdoing.

Before joining Carlson Capital, Grossman worked at hedge fund Level Global.

Level Global shut down last year only months after FBI agents raided it in connection with the government’s insider trading probe. Last month Level Global co-founder Anthony Chiasson was charged in the insider probe.

Kinnucan was arrested late on Thursday, more than a year after he was first linked to Operation Perfect Hedge, the federal probe into the trafficking of corporate information among analysts, corporate executives and hedge fund traders.

The 54-year-old Kinnucan briefly became a media sensation when he went public in 2010 with his refusal to wear an FBI wire to cooperate with the investigation. He then sent a widely circulated email to current and former clients of his firm, Broadband Research, to alert them to the probe.

FOUR COUNTS

Prosecutors charged Kinnucan with two counts of securities fraud and two counts of conspiracy.

He was also charged with insider trading in a civil case filed by the U.S. Securities and Exchange Commission. Both cases were filed in the U.S. District Court in Manhattan.

Kinnucan was expected to appear Friday afternoon in Portland federal court. He faces up to 20 years in prison on each of the securities fraud counts and one of the conspiracy counts, and up to five years on the other conspiracy count.

It is unclear whether Kinnucan has hired a lawyer for his criminal defense. Nathan Burney, a lawyer who has represented Kinnucan previously, declined to comment on Friday.

Former SanDisk executive Don Barnetson, 37, pleaded guilty to one count of conspiracy to commit wire fraud and securities fraud before U.S. Magistrate Judge Gabriel Gorenstein in Manhattan.

“I conspired with a consultant to provide confidential information with respect to my employer at the time, SanDisk Corp,” from a period from 2008 to 2010, he said in a staccato voice.

Barnetson faces up to five years in prison but could get leniency given what prosecutors called his “substantial cooperation.” Bail was set at $50,000. His lawyer Gary Villanueva declined to comment.

CURRYING FAVOUR

Federal prosecutors alleged that Kinnucan passed on corporate secrets as part of a consulting arrangement with at least two unidentified hedge funds, including one in Dallas.

Investigators said he gave clients material nonpublic information that he obtained from employees at a variety of public technology companies, causing three of those clients to reap roughly $1.58 million of illicit trading gains.

The companies included SanDisk, network equipment maker F5 Networks Inc (FFIV.O: Quote, Profile, Research) and chipmaker Flextronics International Ltd (FLEX.O: Quote, Profile, Research), investigators said. Flextronics and SanDisk insiders provided information on Apple, they added.

“John Kinnucan used financial incentives, fancy meals and other inducements to curry favor with public company insiders so they would serve up their employers’ secrets,” U.S. Attorney Preet Bharara said in a statement.

In one alleged instance, Kinnucan called clients just minutes after learning from an F5 employee that quarterly revenue would beat Wall Street estimates.

One California portfolio manager then supposedly bought F5 shares to cover a short position — a bet the shares would drop– and avoided a $631,000 loss.

“Ty <thank you> for having me cover ffiv,” the portfolio manager later wrote Kinnucan, referring to the stock ticker, according the government.

The F5 insider is cooperating with the government.

F5, Flextronics and SanDisk did not immediately respond to requests for comment.

EMAIL TRAIL

Operation Perfect Hedge, made public in October 2009, has led to more than 60 people pleading guilty or being arrested. Among those convicted is Galleon Group hedge fund founder Raj Rajaratnam, now serving an 11-year prison term.

Kinnucan became something of a celebrity in the financial world in late 2010 after telling clients and the media he was refusing to cooperate with the government probe.

He sent an email that October to more than 50 people associated with roughly 20 hedge funds and mutual funds that he was a target.

Among these were Kenneth Griffin’s Citadel Group, Steven A. Cohen’s SAC Capital Advisors and Dallas-based Carlson Capital. None of the funds has been accused of wrongdoing.

“My clients are not some scummy fly-by-night hedge funds,” Kinnucan said in a December 2010 interview.

The Kinnucan cases are U.S. v. Kinnucan, U.S. District Court, Southern District of New York, No. 12-mag-00424; and SEC v. Kinnucan in the same court, No. 12-01230.

(Reporting By Sinead Carew, Matthew Goldstein, Martha Graybow, Jonathan Stempel, Katya Wachtel, Svea Herbst-Bayliss, and Teresa Carson; Editing by Gerald E. McCormick and Steve Orlofsky and Matthew Goldstein)

The charges against the analyst, John Kinnucan of Portland,
Oregon, were announced on Friday shortly before a former
executive at flash memory chipmaker SanDisk Corp
pleaded guilty to conspiring to divulge company secrets to an
unnamed consultant. A source close to the probe, who declined to
be identified, said that consultant was Kinnucan.

Kinnucan appeared in U.S. District Court in Portland,
Oregon, on Friday afternoon wearing light blue jail clothing.
After a hearing that lasted about 20 minutes, Judge John Acosta
ordered him held in custody until another hearing on Wednesday.

Between 2008 and 2010, investigators said, Kinnucan paid
insiders with cash, trips and other benefits to get secret
information, including sales trends for Apple Inc’s
iPhone.

Kinnucan then funneled the information to hedge fund traders
in California and New York in exchange for hundreds of thousands
of dollars, investigators said.

One person who allegedly got tips from Kinnucan was a
former portfolio manager with Dallas-based Carlson Capital, a
$6.5 billion hedge fund. Carlson issued a statement on Friday
that the manager who had worked in New York had left the firm in
March 2011 and had been there for just nine months. Carlson said
it was cooperating with the probe and that it was not a target
of the investigation.

The hedge fund did not identify the manager, but three
sources familiar with the government’s investigation said that
it was Dan Grossman. Sources said Grossman had retained a
lawyer, but attempts to reach the lawyer were unsuccessful.
Grossman has not been charged with any wrongdoing.

Before joining Carlson Capital, Grossman worked at
hedge fund Level Global.

Level Global shut down last year only months after FBI
agents raided it in connection with the government’s insider
trading probe. Last month Level Global co-founder Anthony
Chiasson was charged in the insider probe.

Kinnucan was arrested late on Thursday, more than
a year after he was first linked to Operation Perfect Hedge, the
federal probe into the trafficking of corporate information
among analysts, corporate executives and hedge fund traders.

The 54-year-old Kinnucan briefly became a media sensation
when he went public in 2010 with his refusal to wear an FBI wire
to cooperate with the investigation. He then sent a widely
circulated email to current and former clients of his firm,
Broadband Research, to alert them to the probe.

FOUR COUNTS

Prosecutors charged Kinnucan with two counts of securities
fraud and two counts of conspiracy.

He was also charged with insider trading in a civil case
filed by the U.S. Securities and Exchange Commission. Both cases
were filed in the U.S. District Court in Manhattan.

Kinnucan was expected to appear Friday afternoon in Portland
federal court. He faces up to 20 years in prison on each of the
securities fraud counts and one of the conspiracy counts, and up
to five years on the other conspiracy count.

It is unclear whether Kinnucan has hired a lawyer for his
criminal defense. Nathan Burney, a lawyer who has represented
Kinnucan previously, declined to comment on Friday.

Former SanDisk executive Don Barnetson, 37, pleaded guilty
to one count of conspiracy to commit wire fraud and securities
fraud before U.S. Magistrate Judge Gabriel Gorenstein in
Manhattan.

“I conspired with a consultant to provide confidential
information with respect to my employer at the time, SanDisk
Corp,” from a period from 2008 to 2010, he said in a staccato
voice.

Barnetson faces up to five years in prison but could get
leniency given what prosecutors called his “substantial
cooperation.” Bail was set at $50,000. His lawyer Gary
Villanueva declined to comment.

CURRYING FAVOR

Federal prosecutors alleged that Kinnucan passed on
corporate secrets as part of a consulting arrangement with at
least two unidentified hedge funds, including one in Dallas.

Investigators said he gave clients material nonpublic
information that he obtained from employees at a variety of
public technology companies, causing three of those clients to
reap roughly $1.58 million of illicit trading gains.

The companies included SanDisk, network equipment maker F5
Networks Inc and chipmaker Flextronics International
Ltd, investigators said. Flextronics and SanDisk
insiders provided information on Apple, they added.

“John Kinnucan used financial incentives, fancy meals and
other inducements to curry favor with public company insiders so
they would serve up their employers’ secrets,” U.S. Attorney
Preet Bharara said in a statement.

In one alleged instance, Kinnucan called clients just
minutes after learning from an F5 employee that quarterly
revenue would beat Wall Street estimates.

One California portfolio manager then supposedly bought F5
shares to cover a short position — a bet the shares would
drop– and avoided a $631,000 loss.

“Ty [thank you] for having me cover ffiv,” the portfolio
manager later wrote Kinnucan, referring to the stock ticker,
according the government.

The F5 insider is cooperating with the government.

F5, Flextronics and SanDisk did not immediately respond to
requests for comment.

EMAIL TRAIL

Operation Perfect Hedge, made public in October 2009, has
led to more than 60 people pleading guilty or being arrested.
Among those convicted is Galleon Group hedge fund founder Raj
Rajaratnam, now serving an 11-year prison term.

Kinnucan became something of a celebrity in the financial
world in late 2010 after telling clients and the media he was
refusing to cooperate with the government probe.

He sent an email that October to more than 50 people
associated with roughly 20 hedge funds and mutual funds that he
was a target.

Among these were Kenneth Griffin’s Citadel Group, Steven A.
Cohen’s SAC Capital Advisors and Dallas-based Carlson Capital.
None of the funds has been accused of wrongdoing.

“My clients are not some scummy fly-by-night hedge funds,”
Kinnucan said in a December 2010 interview.

The Kinnucan cases are U.S. v. Kinnucan, U.S. District
Court, Southern District of New York, No. 12-mag-00424; and SEC
v. Kinnucan in the same court, No. 12-01230.

As part of the case against Oregon-based analyst John Kinnucan, former SanDisk Corp executive Don Barnetson was expected to plead guilty later Friday to supplying Kinnucan with inside tips, according to sources close to the investigation. They declined to be identified because those charges were not yet public.

The arrest of Kinnucan came more than a year after he first surfaced in a wide-ranging government probe into trafficking of corporate information among industry analysts, corporate executives and traders at hedge funds.

Kinnucan said previously that FBI agents had approached him in 2010 to wear a wire in order to catch one of his contacts, but that he rebuffed them. He then went on to send an email to his past and current clients alerting them to the FBI’s efforts.

Kinnucan, a principal at Broadband Research in Portland, Oregon, was charged with two counts of securities fraud and two counts of conspiracy, U.S. prosecutors said. He was also charged with insider trading in a civil case filed by the U.S. Securities and Exchange Commission.

Barnetson, was expected to plead guilty later Friday to a securities fraud-related charge for passing tips to Kinnucan, sources said. He could not immediately be reached.

Federal prosecutors alleged that Kinnucan, as part of his consulting arrangement with at least two unidentified hedge funds, passed on corporate secrets. The government said one of the hedge funds is based in Dallas, Texas.

Nathan Burney, a lawyer who has represented Kinnucan, did not immediately respond to a request for comment.

Investigators said the 54-year-old analyst obtained material nonpublic information from employees at a variety of public technology companies, such as SanDisk, F5 Networks Inc and Flextronics International Ltd, and gave the information to clients.

“John Kinnucan used financial incentives, fancy meals and other inducements to curry favor with public company insiders so they would serve up their employers’ secrets,” U.S. Attorney Preet Bharara said in a statement.

The SEC said Kinnucan paid his sources with such things as cash and ski trips, and generated hundreds of thousands of dollars in annual revenue for Broadband in 2009 and 2010 when his clients paid for that inside information.

The cases are the latest in a federal probe into insider trading, known by the FBI as Operation Perfect Hedge.

That probe was first unveiled in October 2009 and has led to more than 60 people pleading guilty or being arrested.

Kinnucan was arrested without incident at his Portland, Oregon, home late Thursday afternoon, and was expected to appear Friday afternoon in a federal court in that city, the FBI said.

F5, Flextronics and SanDisk did not immediately respond to requests for comment. The criminal and SEC complaints were filed in the U.S. District Court in Manhattan.

The Kinnucan cases are U.S. v. Kinnucan, U.S. District Court, Southern District of New York, No. 12-mag-00424; and SEC v. Kinnucan in the same court, No. 12-01230.

(Additional reporting By Sinead Carew, Matthew Goldstein, Martha Graybow, and Katya Wachtel; Editing by Gerald E. McCormick)

The 2nd U.S. Circuit Court of Appeals overturned the conviction of Sergey Aleynikov on Thursday night and said an opinion explaining its reasoning would follow “in due course.”

It also directed the trial court to enter a judgment of acquittal. Generally this means a defendant cannot be retried.

The decision was swift, coming just hours after Aleynikov’s lawyer argued in court to reverse the conviction. Aleynikov has been serving an eight-years prison sentence.

“We are extremely gratified that the court of appeals refused to let this unjust conviction stand,” the lawyer, Kevin Marino, said.

Ellen Davis, a spokeswoman for federal prosecutor Preet Bharara in Manhattan, declined to comment.

Goldman spokesman Michael DuVally also declined to comment.

The reversal is a setback for government efforts to crack down on thefts of intellectual property, including computer code.

Last month, federal authorities arrested Chinese computer programmer Bo Zhang, a resident of Queens, New York, on charges that he stole nearly $10 million of software code from the Federal Reserve Bank of New York.

Aleynikov, 42, was convicted by a federal jury in December 2010 of stealing trade secrets in violation of the Economic Espionage Act of 1996

Prosecutors accused Aleynikov of copying and removing trading code from Goldman in 2009, shortly before taking a new job at Teza Technologies LLC, a high-frequency trading start-up firm in Chicago. Teza was not accused of wrongdoing.

Aleynikov, who was once a competitive ballroom dancer, has three children and has held dual citizenship in the United States and Russia.

Marino argued that his client’s conduct did not violate the espionage law, or a separate federal law barring the transportation of stolen property across state lines.

He argued in court papers that prosecutors “expanded two federal criminal statutes beyond anything Congress could have imagined,” and that Aleynikov was punished as severely as someone who stole $20 million.

Aleynikov has been serving his sentence at a federal prison in Fort Dix, New Jersey, according to the Federal Bureau of Prisons.

The case is U.S. v. Aleynikov, 2nd U.S. Circuit Court of Appeals, No. 11-1126. The lower court case was U.S. v. Aleynikov, U.S. District Court, Southern District of New York, No. 10-00096.

(Reporting By Grant McCool and Jonathan Stempel; Editing by Gerald E. McCormick and John Wallace)

(Reuters) – It wasn’t Sherry Hunt’s original intent to go public on the shoddy quality control at a mortgage unit at Citigroup Inc (C.N: Quote, Profile, Research, Stock Buzz), her employer since 2004.

But by March 2011, as it became apparent to her that the problems were getting worse and not being addressed, the Missouri quality assurance manager decided enough was enough.

“I set up an appointment with human resources and ethics and told them everything,” Hunt recalled in a telephone interview. “They did some cursory investigation. The sad part is, they never ever told me, ‘Sherry, you were right,’ or ‘Sherry, you’re looking at this wrong.’ There were no assurances.”

Instead, Hunt, who got her start in the mortgage industry in 1975 at age 18, filed a whistleblower lawsuit against Citigroup, the third-largest U.S. bank by assets.

The United States joined the civil fraud case, which raised claims under the False Claims Act, a federal law designed to recover money taken from the government by fraud, and discourage further wrongdoing. Whistleblowers can receive up to 25 percent of settlement amounts in such cases.

Wednesday, Citigroup agreed to pay $158.3 million to settle. Hunt said her share will be $31 million, before taxes and attorney fees. Her lawyer declined to disclose those fees.

In settling, Citigroup accepted responsibility for conduct alleged in the complaint, dating back to 2004.

The government accused CitiMortgage of misleading it into insuring thousands of risky home loans that it knew or should have known did not qualify for insurance from the Federal Housing Agency, costing taxpayers nearly $200 million in claims.

CitiMortgage had certified for FHA insurance nearly 30,000 home loans valued at more than $4.8 billion since 2004, but more than 30 percent — or 9,636 loans — had gone into default, the Justice Department said. The default rate topped 47 percent for such loans made in 2006 and 2007, it added.

The government also said CitiMortgage failed to report many underwriting flaws and other problems as required to the FHA, part of the U.S. Department of Housing and Urban Development. This even extended to mortgages where borrowers were so stressed that they could not make their first payment.

“BRUTE FORCE”

In the settlement, Citigroup accepted responsibility for improperly certifying many loans for insurance, and failing to comply with disclosure rules.

A bank spokesman, Mark Rodgers, said the New York-based bank had improved its procedures, and plans to continue participation in the FHA program. Citigroup declined to comment on allegations in the complaint or by Hunt.

The complaint contended that senior bank personnel applied “brute force” to quality control managers to effectively sweep “defects” under the rug.

Hunt said such defects, mostly the fault of borrowers, included mismatched signatures on loan documents, white-out on income documentation, and mistakes on employment statuses. She said there were also errors on whether borrowers planned to live in homes they were buying as required for FHA loans.

But Citigroup had tied some salaries to the infrequency with which such defects cropped up, according to the complaint.

Hunt lives with her husband in Silex, Missouri, a St. Louis suburb close to CitiMortgage headquarters in O’Fallon, Missouri.

She said she began working in the mortgage industry in 1975 at the First National Bank of Fairbanks in Alaska, and has since April 2008 been a vice president and quality assurance manager at CitiMortgage.

At CitiMortgage, Hunt said she got pressure to keep the number of defects down, especially if the percentage were above the 5 percent that would be considered acceptable.

She recalled a January 2011 “Star Players Award” ceremony attended by about 1,000 people, to honor workers who challenged defects reported by the quality control unit.

“Three people won this award — they stood up, everyone applauded, and they (were told) they effectively rebutted Quality Assurance’s findings,” Hunt recalled. “That statement made my team members and other team members feel like morons: that they were making bad decisions, when they were not.”

By mid-year, long after she had first raised concern to the human resources unit, she recalled that “upper senior management told me and one of my peers that our asses were on the line if these defects didn’t come down. I took that as a threat. That was the final act that pushed me into the direction I went.”

PROBLEMS PERSIST, EVEN AFTER CRISIS

What stands out is that some of the conduct targeted in the complaint took place so late — the middle of 2011.

This was more than four years after the nation’s housing downturn began, and nearly three years after a global financial crisis that resulted in Citigroup losing $27.7 billion in 2008 and accepting $45 billion of taxpayer bailouts.

While the bank has since repaid the government, longtime shareholders are still paying a price, with the stock down more than 94 percent since the end of 2006.

Finley Gibbs, Hunt’s lawyer, said he reached out to the Justice Department before filing the lawsuit in August. The lawsuit in Manhattan federal court was kept secret until Wednesday.

“This case, and Citi’s reaction to this case, exemplifies the reason we have the False Claims Act,” he said. “It is a structure to allow the little guy to stand up when something is being done wrong that harms the U.S. government and taxpayers.”

More than $34 billion has been recovered in False Claims Act cases since 1986, with the largest award totaling $1 billion, according to the Taxpayers Against Fraud Education Fund.

Hunt said she had seen improvements at CitiMortgage. “The reporting structure of the quality assurance function has changed, and I do believe the attitude of upper management is ‘we’re going to do this right.’”

Gibbs said Hunt remains a Citigroup employee, but has not been in the office for “a few weeks.”

Hunt said she hoped the case would leave her colleagues feeling comfortable to do what’s right if a comparable situation arose.

“I came forward out of a passion for what I do, and what I chose for a career, and I did it for my children, my grandchildren,” she said. “I’m hoping that they can have the same opportunities that I had when I bought my first house and started my family.

“I didn’t care if I lost my house, and I knew I would risk my career, but I was willing to go forward even if we had to start over in an apartment and I had to get a job outside the mortgage industry,” she added. “And I have no regrets.”

The case is U.S. ex rel. Hunt v. Citigroup Inc et al, U.S. District Court, Southern District of New York, No. 11-05473.

(Editing by Robert Birsel)

The insurer made its claim in a Wednesday letter to New York
State Supreme Court Justice Eileen Bransten seeking to force
Countrywide to turn over a variety of documents.

Countrywide replied on Thursday that MBIA’s request was part
of the insurer’s strategy to “pre-try” the case “based on
nothing more than hyperbolic rhetoric and falsehoods.”

The battle over evidence intensifies litigation in which
MBIA accused Countrywide of misrepresenting the quality of
underwriting for about 368,000 loans backing 15 financings it
insured between 2005 and 2007.

MBIA said it would not have provided the insurance had it
known how the loans were underwritten.

In the Feb. 15 letter, MBIA asked for “many” documents that
“relate to recently-uncovered evidence of widespread
mortgage-origination fraud at Countrywide. Countrywide appears
determined to withhold this evidence from MBIA despite its clear
relevance to several of MBIA’s claims.”

The request came after Countrywide produced what MBIA
called an “incomplete” set of loan records backing MBIA-insured
securities from a Countrywide fraud-tracking database, known as
FACTS, that was “not previously known to exist” to the insurer.

In their response, lawyers for Countrywide said their client
was “surprised” at MBIA’s request, and had “promptly and
voluntarily produced all records contained in the FACTS
database” used by its fraud risk managers concerning the loans.

Separately, Bank of America on Feb. 15 asked Bransten to
block MBIA’s request to depose Chief Executive Brian Moynihan.

“A chief executive officer of a major corporation may only
be deposed when he has unique information that is not available
through other means,” Bank of America spokesman Lawrence Grayson
said in an email. “The discovery process remains fully available
to MBIA, including through the numerous current and former
executives that MBIA will be deposing.”

As to the alleged new evidence of mortgage origination
fraud, Grayson referred to the letter by Countrywide lawyers. An
MBIA spokesman declined to comment.

MBIA’s prospects in the case brightened last month when
Bransten ruled that to establish fraud, MBIA need only show
Countrywide misled it about the $20 billion of securities it
insured, not that such misleading caused its losses.

Bank of America is based in Charlotte, North Carolina, and
is the second-largest U.S. bank by assets.

MBIA is based in Armonk, New York. Once the largest U.S.
municipal bond insurer, it was in 2009 restructured by New
York’s insurance department after incurring big losses insuring
mortgage debt. Bank of America and some other banks are
challenging that restructuring.

Bank of America shares closed up 31 cents, or 4 percent, at
$8.09. MBIA shares fell 4 cents to $11.64.

The cases is MBIA Insurance Corp v. Countrywide Home Loans
Inc et al, New York State Supreme Court, New York County, No.
602825/2008.

(Reuters) – Citigroup Inc has agreed to pay $158.3 million to settle U.S. civil claims that it defrauded the government into insuring thousands of risky home loans made by its CitiMortgage unit.

Wednesday’s settlement resolves claims under the federal False Claims Act against the third-largest U.S. bank, and arose from a “whistleblower” lawsuit brought by Sherry Hunt, a CitiMortgage employee in Missouri.

According to settlement papers, CitiMortgage “admits, acknowledges and accepts responsibility” for misleading the government into insuring risky home loans. Investigators said the misconduct lasted for more than six years.

The civil fraud case is the third by the U.S. Attorney’s office in Manhattan since May 2011.

It is part of a crackdown against lenders that investigators believe contributed to the housing crisis by originating risky home loans that should not have been made, insured or sold.

The government accused Citigroup of falsely certifying that many of its loans qualified for insurance from the Federal Housing Agency, which is part of the U.S. Department of Housing and Urban Development.

Investigators said 9,636, or more than 30 percent, of nearly 30,000 HUD-insured mortgage loans that Citigroup made or underwrote since 2004 have defaulted, costing the agency nearly $200 million in insurance claims.

“For far too long, lenders treated HUD’s insurance of their mortgages like they were playing with house money,” U.S. Attorney Preet Bharara said in a statement. “In fact, they were playing with other people’s money and other people’s homes.”

WHISTLEBLOWER

Citigroup spokesman Mark Rodgers said the bank is pleased to settle. “We take our quality assurance processes seriously and have pro-actively undertaken process improvements to ensure that they are as robust as possible,” he said.

Rodgers also said Citigroup has set aside enough money to cover the payout. The bank had said last week it was taking a $125 million after-tax charge against results for its just-completed fourth quarter in connection with mortgage litigation.

Cases brought under the False Claims Act have recovered more than $34 billion in federal and state cases since the law was amended in 1986, according to the Taxpayers Against Fraud Education Fund.

Whistleblowers often receive part of settlement sums in such cases. It was not immediately clear how much Hunt might recover. Her lawyer, Finley Gibbs, did not immediately respond to a request for comment.

The $158.3 million payout is separate from New York-based Citigroup’s agreement to pay as much as $2.22 billion under last week’s roughly $25 billion U.S. settlement with five big mortgage servicers over alleged foreclosure abuses.

DEUTSCHE BANK, ALLIED HOME

Last May, the government accused Deutsche Bank AG and its MortgageIT Inc unit in a $1 billion False Claims Act case over misleading HUD into insuring risky mortgages.

Six months later, it filed similar charges against Houston-based Allied Home Mortgage Capital Corp, which had billed itself as the largest privately held U.S. mortgage broker.

Deutsche Bank and Allied Home have fought the charges. Andrew Levander, a lawyer for Deutsche Bank, and Bruce Alexander, a lawyer for Allied Home, did not immediately respond to requests on Wednesday for comment.

The Citigroup settlement was approved by U.S. District Judge Victor Marrero in Manhattan, Bharara said.

Shares of Citigroup were down 17 cents at $31.91 in afternoon trading on the New York Stock Exchange.

The case is U.S. ex rel. Hunt v. Citigroup Inc et al, U.S. District Court, Southern District of New York, No. 11-05473.

(Reporting By Jonathan Stempel in New York; Additional reporting by Rick Rothacker in Charlotte, N.C. and Aruna Viswanatha in Washington, D.C.; Editing by Matthew Lewis and Gerald E. McCormick)