Skip to main content
Menu Icon
Close

InfoBytes Blog

Financial Services Law Insights and Observations

Independent auditor agrees to $149.5 million settlement with DOJ over potential FCA liability

Federal Issues DOJ False Claims Act / FIRREA Mortgages FHA HUD Mortgage Origination

Federal Issues

On February 28, the DOJ announced a $149.5 million settlement with an independent auditor for potential False Claims Act (FCA) liability related to its auditing work of a failed mortgage origination company. According to the announcement, between 2002 and 2008, the company served as an independent auditor of a mortgage originator, which issued Fair Housing Administration (FHA) insured loans through HUD’s Direct Endorsement Lender program. The program requires mortgage companies to submit to HUD annual audit reports on financial statements and compliance with certain HUD requirements. The DOJ alleges that during that time, the now failed mortgage originator engaged in a fraudulent scheme, which, among other things, resulted in the originator’s financial distress to not be reflected in its financial statements. The DOJ alleges that the independent auditor “knowingly deviated from applicable auditing standards” and therefore, failed to detect the misleading financial statements and the originator’s allegedly fraudulent conduct, which allowed the originator to continue issuing FHA loans until it declared bankruptcy in 2009. The DOJ notes that the settlement relates to allegations only and there was no determination of actual liability against the independent auditor.