Feds sue Deutsche Bank for mortgage fraud, to recover millions in insurance payments

NEW YORK (AP) — The federal government sued Deutsche Bank Tuesday, saying the bank committed fraud and padded its pockets with undeserved income as it repeatedly lied to benefit from a government program that insured mortgages.

The lawsuit in U.S. District Court in Manhattan seeks to recover hundreds of millions of dollars in insurance claims the government had to pay when homeowners defaulted on their mortgages.

The lawsuit also asks for punitive damages. The government said the bank made substantial profits between 2007 and 2009 from the resale of the risky mortgages, leaving the government to foot the bill for loans that defaulted. The mortgage insurance is issued by the Federal Housing Administration.

The lawsuit said the bank carried out the fraud through its subsidiary, MortgageIT, which employed more than 2,000 people at branches in all 50 states. Deutsche acquired MortgageIT in 2007.

At a news conference, U.S. Attorney Preet Bharara said the bank "repeatedly and brazenly" engaged in a pattern of reckless lending for mortgages "that were really ticking time bombs," sometimes failing even to verify that a mortgage applicant had a job.

"In fact, they often seemed to treat red flags as if they were green lights," he said.

Still, the prosecutor said the government found no evidence of the criminal intent necessary to take the case beyond a civil lawsuit.

"Every lie is not a crime," he said.

In a statement, Deutsche Bank spokeswoman Renee Calabro said the bank has received the complaint and was reviewing it.

"We believe the claims against MortgageIT and Deutsche Bank are unreasonable and unfair, and we intend to defend against the action vigorously," she said.

Calabro said nearly 90% of the activity described in the lawsuit occurred before Deutsche Bank acquired MortgageIT, which had been an FHA lender operating with government oversight for almost a decade.

Since last fall, federal regulators and attorneys general of all 50 states have been investigating lenders accused of cutting corners and using flawed documents to foreclose on many homeowners. In some cases, employees of financial institutions engaged in so-called robo-signing ? approving documents in foreclosures without actually reading them. Foreclosure-fraud class-action lawsuits are also piling up against major banks nationwide.

Bharara said it "would not be a fantastical stretch to think we are looking at other lending institutions as well."

The lawsuit against Deutsche Bank sought to recover more than $386 million that the Department of Housing and Urban Development has paid out in FHA insurance claims and related costs.

It said HUD had paid more than $97 million in FHA claims and related costs arising out of more than 600 mortgages that defaulted within six months.

HUD sets the rules for the FHA mortgage insurance program, including requirements relating to the adequacy of the borrower's income to meet mortgage payments, the borrower's creditworthiness and the appropriateness of the valuation of the property being purchased.

The lawsuit said Deutsche Bank and MortgageIT failed to comply with HUD rules and regulations regarding required quality control procedures, and then lied about their purported compliance.

The government said the quality control violations were egregious, including the failure to review all early payment defaults and to implement minimal quality control processes.

The lawsuit noted that MortgageIT hired an outside vendor, Tena Companies, to conduct quality control reviews of closed FHA-insured loans in 2004 but then never read letters that Tena wrote identifying serious underwriting violations.

"Instead, MortgageIT employees stuffed the letters, unopened and unread, in a closet in MortgageIT's Manhattan headquarters," the lawsuit said.

Associate Press Writer Derek Kravitz in Washington contributed to this report.

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Independent groups expected to rake in hundreds of millions

Outside groups' influence in 2012STORY HIGHLIGHTS Democratic third-party groups aim to raise up to $200 million in outside money for 2012
Democrats say they were trounced by GOP-aligned third-party groups in 2010 races
Groups grew after Supreme Court ruling allowing unlimited contributions by corporations
Conservative insists labor unions already help Democrats dominate outside spending RELATED TOPICSBarack ObamaPolitical PartiesU.S. Presidential ElectionKarl Rove Washington (CNN) -- As President Barack Obama kicks off the 2012 money race with a series of well-publicized re-election fundraisers in Chicago, Democratic operatives are quietly crisscrossing the nation to raise big money for new independent expenditure groups.

All told, these Democratic third-party groups aim to raise up to $200 million in outside money -- that's in addition to the $1 billion Obama's fundraisers set as their campaign goal. The number and size of the independent expenditure groups ballooned last year, thanks in part a Supreme Court ruling that allows unlimited contributions by corporations.

Obama heads home to kick off fundraising

There is some irony here: Obama has denounced these secretive third-party groups as tools of "powerful interests that marshal their power every day in Washington to drown out the voices of everyday Americans." But now Democrats say, after they were trounced in the 2010 midterm elections by GOP-aligned third-party groups --- including those founded by Karl Rove and the Koch brothers --- they have no choice but to join them.

Obama re-election campaign touts small-dollar contributions

Monica Dixon, the executive director of Majority PAC, one of these new groups, says, "We were just outgunned and outmanned last cycle. We didn't do a good job of supporting our candidates against this barrage of money that was spent against them. And so this cycle we are engaged. We are going to raise the money to defend our candidates against these attacks."

Analysis: Why Obama really announced today: M-o-n-e-y

Among the new Democratic groups are four SuperPACS, which are expected to be up and running by the end of this month. They are:

• House Majority PAC, which launched this week, is focused on helping Democrats regain control of the House of Representatives. It's run by three strategists previously involved in House campaigns and is planning ads that target vulnerable Republicans during the April congressional recess.

• Majority PAC was put together by some of the Democratic Party's most seasoned Senate campaign operatives. It will focus on ensuring that Democrats keep control of the Senate. They've begun raising money and choosing targets. Their goal, one operative says, is to start defining Republicans early in the cycle.

• A group dedicated to supporting Obama's re-election bid will open later this month. Helmed by former White House deputy press secretary Bill Burton and Sean Sweeney, former top aide to ex-Chief of Staff Rahm Emanuel, it aims to compete with American Crossroads --- the Rove-founded group --- which plans to raise $120 million this cycle.

• And a fourth group, American Bridge 21st Century, will provide opposition research and communications for Democratic races for Congress and the presidency. Founded by conservative-turned-liberal activist David Brock and chaired by former Maryland Lt. Gov. Kathleen Kennedy Townsend, it has a more far-reaching goal. In a statement to CNN, Rodell Mollineau, its president, says he hopes hopes to build the group "into an enduring political research and communications powerhouse."

Chris Harris, spokesman for American Bridge, tells CNN, "We are investing in a massive war room so we can define (GOP) candidates before they define themselves."

Organizers say the groups -- which are banned from coordinating with the campaigns -- are working with one another. Sources familiar with their plans tell CNN that American Bridge aims to raise $20 million to $30 million, the Burton-Sweeney presidential effort would try to raise $120 million, and in order to be competitive, Majority PAC would need to bring in $50 million to $100 million. There are no early projections for House Majority PAC's numbers.

Steven Law, president of the conservative outside group American Crossroads, insists that Democrats already dominate outside spending -- thanks to labor unions. "For years now the unions have perfected the art of doing outside campaign ads, outside voter turnout activity," Law said, adding, "We created American Crossroads to be a counterpoint to what the unions and other groups like Moveon.org have done very effectively for the last several elections."

He predicts liberal groups will outspend conservatives this cycle. But Democratic fundraisers laugh that off, saying Republicans can raise far more money from deep-pocketed donors.

Apparently, it's a race to lower expectations.

Many new Republican-aligned groups popped up last election, including the American Action Network, supported by top Republican fundraiser Fred Malek and former Sen. Norm Coleman on its board.

Other major players on the conservative side: the Chamber of Commerce, Americans for Prosperity and the Club for Growth, all of which made major investments in the midterm campaign ads against Democratic candidates.

American Crossroads and affiliate Crossroads GPS is the behemoth on the scene. Co-founded by Rove, it raised $71 million and in its first year last cycle and saturated the airwaves in some hotly contested campaigns. For the coming election, it says it hopes to raise $120 million. The group tells CNN within weeks it will air ads related to the federal budget fight.

"This is one election where literally everything is at stake: the White House, the Senate majority, the House majority and even the courts for potentially a generation so everybody's very engaged and interested. And they want to continue to play and hopefully affect the direction of the country in a positive way," American Crossroads' Law says.

One independent conservative group last weekend started airing a commercial in some key battleground states critical of the president. The spot, titled "Barack Obama's Legacy of Failure," was sponsored by the Campaign to Defeat Barack Obama.

Conservative group puts out anti-Obama TV ad

A number of these groups on both sides of the aisle are affiliated with highly secretive organizations known as 501(c)(4) groups ( a reference to their designation in the tax code), which don't have to report their donors to the Federal Election Commission.

Groups not directly affiliated with political parties accounted for $298.5 million in political spending during the 2010 midterms, according to the Center for Responsive Politics, which tracks the influence of money in politics.

This time around, expect even more.

"The numbers will dwarf the roughly $300 million in outside spending we witnessed in 2010. The only question that remains is, by how much?" said Dave Levinthal, a spokesman for the center.

CNN political research director Robert Yoon contributed to this report.

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BP buys Gulf Coast millions in gear

By Gerald Herbert, AP

A biologist from the Audubon Institute releases a sea turtle that had been impacted by the oil spill back into the Gulf of Mexico in October. The boat was purchased with money from BP.

EnlargeCloseBy Gerald Herbert, AP

A biologist from the Audubon Institute releases a sea turtle that had been impacted by the oil spill back into the Gulf of Mexico in October. The boat was purchased with money from BP.

The oil giant opened its checkbook while the crisis was still unfolding last spring and poured hundreds of millions of dollars into Gulf Coast communities with few strings attached.

In sleepy Ocean Springs, Miss., reserve police officers got Tasers. The sewer department in nearby Gulfport bought a $300,000 vacuum truck that never sucked up a drop of oil. Biloxi, Miss., bought 14 SUVs and trucks. A parish president in Louisiana got herself a top-of-the-line iPad, her spokesman a $3,100 laptop. And a county in Florida spent $560,000 on rock concerts to promote its oil-free beaches.

In every case, communities said the new, more powerful equipment was needed to deal at least indirectly with the spill.

OIL SPILL ANNIVERSARY: Timeline, videos, stories from the GulfWILDLIFE: Scientists grapple with oil spill's cost to bird lifeIn many cases, though, the connection between the spill and the expenditures was remote, and lots of money wound up in cities and towns little touched by the goo that washed up on shore, the AP found in records requested from more than 150 communities and dozens of interviews.

Florida's tourism agency sent chunks of a $32 million BP grant as far away as Miami-Dade and Broward counties on the state's east coast, which never saw oil from the disaster. BP announced Monday it would give another $30 million to help several northwest Florida counties promote tourism.

Some officials also lavished campaign donors and others with lucrative contracts. A Florida county commissioner's girlfriend, for instance, opened up a public relations firm a few weeks after the spill and soon landed more than $14,000 of the tiny county's $236,000 cut of BP cash for a month's work.

The April 20 explosion on the Deepwater Horizon rig in the Gulf of Mexico killed 11 workers and spawned the nation's worst offshore oil spill. As BP spent months trying to cap the well and contain the spill, cities and towns along the coast from Louisiana to Florida worried about the toll on their economies — primarily tourism and the fishing industry — as well as the environmental impact.

All told, BP PLC says it has paid state and local governments more than $754 million as of March 31, and has reimbursed the federal government for another $694 million.

BP set few conditions on how states could use the money, stating only that it should go to mitigate the effects of the spill. The contracts require states to provide the company with at least an annual report on how the money has been used, BP spokeswoman Hejdi Feick said. But it's unclear what consequences, if any, the states could face if they didn't comply.

Some of the money BP doled out to states and municipalities hasn't been spent yet, but the AP's review accounts for more than $550 million of it. More than $400 million went toward clear needs like corralling the oil, propping up tourism and covering overtime.

Much of the remaining chunk consists of equally justifiable expenses, but it's also riddled with millions of dollars' worth of contracts and purchases with no clear connection to the spill, the AP found.

William Walker, executive director of the Mississippi Department of Marine Resources, said it's clear now that communities bought more equipment than they wound up needing. But he doesn't regret handing out BP's money freely.

"At the time we were making these decisions, there were millions of gallons of oil going into the Gulf of Mexico with no clear idea when it would stop," Walker said. "We didn't wait. We tried to get (grant money) into circulation as quickly as possible. We didn't have any extra time. We needed to move when we moved."

_

When oil from the ruptured Macondo well began to lap at Louisiana's marshes, BP deployed an army of workers to sop it up and hired contractors who specialize in disaster cleanup.

Even with BP and the federal government taking the lead, many communities weren't content to rely on equipment they had before the spill.

Lafourche Parish President Charlotte Randolph billed BP for an iPad, saying she needed it in addition to her parish-paid Blackberry to communicate with staff and other officials during the crisis. But she didn't buy the iPad until Aug. 26, a month and a half after the well was capped and several weeks after the federal government said much of the oil had been skimmed, burned off, dispersed or dissolved.

"Just because it wasn't streaming from the well any longer doesn't mean it wasn't approaching our shore," Randolph told the AP. "My work is very important. Perhaps one day you could follow me somewhere and learn what my work involves. I must be in contact at all times."

Lafourche Parish spokesman Brennan Matherne, who bought a new Dell laptop and accessories for $3,165, said working on the spill had worn out the computer he got just a year earlier for $2,700.

Biloxi, home to a strip of casinos overlooking the Mississippi Sound, bought 14 sport-utility vehicles and pickups, two boats, two dump trucks and a backhoe loader with its $1.4 million share of BP grant money.

Mayor A.J. Holloway, who drove a city-owned 2006 GMC Yukon before the spill, now has one of the vehicles the city purchased with the BP grant — a black 2011 Chevy Tahoe 1500 LT that cost more than $35,000. The city's public works director and chief engineer also are driving SUVs bought with BP money.

Holloway declined to answer questions about his new vehicle. City spokesman Vincent Creel said the mayor has used it to travel to "countless meetings" about the spill and to gauge the city's response with his own eyes.

"The mayor also uses the vehicle in the normal course of his duties, just as other BP equipment is used in the course of day-to-day business," Creel wrote in an email.

Walker, the state official, said he didn't know about the mayor's use of the vehicle but doesn't object.

Some Mississippi communities took a conservative approach in using their share of the money. Bay St. Louis received $382,461 to buy safety vests, street barricades, radios and other gear, but decided against buying a vacuum truck or other expensive equipment. City Clerk David Kolf said local officials trusted BP's word it would handle all the cleanup, so they didn't see a need to buy a "bunch of new toys."

"They had a lot of heavy equipment already staged here," he said. "We don't have the training. We don't have the personnel."

_

Florida, Louisiana, Mississippi and Alabama each got an initial $25 million from BP, followed by the array of payments for tourism marketing, seafood monitoring and cleanup programs.

More than $300,000 of BP money went to Kenny Loggins, the Doobie Brothers and Lynyrd Skynyrd for a pair of rock shows to promote the state's oil-free beaches; BP shelled out another $260,000 in concert-related costs.

In Alabama, the state Emergency Management Agency distributed $30 million to local governments without rejecting a single request.

Mississippi gave money to 14 counties and cities along the coast, which was dotted with tar balls but never saw the heavy bands of oil that choked south Louisiana's marshlands. In early August, after the well was capped and the oil threat seemed to abate, the state instructed counties and cities to stop spending BP's money without prior approval from state officials.

"We were trying to make the change from protection to restoration and recovery, and that's where we are now," Walker said.

Louisiana doled out its initial $25 million to state agencies, including $10 million for the attorney general's office to devise its legal case against BP and the companies involved in the spill. State agencies spent nearly $9 million more on equipment, including boats, air monitoring units, mobile radios and life vests.

Local government leaders in Louisiana were left to lodge their requests for money directly with BP. Gov. Bobby Jindal's top budget adviser, Paul Rainwater, said the state's deal with BP specified that the money Louisiana got wasn't meant to replace anything that was supposed to go to the parishes.

Blue-collar Plaquemines Parish, which has absorbed some of the spill's worst environmental damage, has received slightly more than $1 million in BP money, of which $998,405 went to cover oil-related overtime and other payroll expenses.

"I didn't run up bills. I treated their money like I treated our own," said Plaquemines Parish President Billy Nungesser, an outspoken critic of BP and the federal government's response to the spill. "Maybe down the road I'll look and say we should have stockpiled."

_

When BP was heavily under attack from the top down for its response to the rapidly growing environmental disaster, the company started throwing huge sums of money at the problems it had in the water and on land. Cutting checks to governments along the coast addressed both issues, even if it meant waiting until later to figure out details like how officials would have to account for the cash.

"We recognized the importance of getting funding to the states, parishes and counties quickly, and therefore provided advance funding to help kick start their emergency response," Feick, the BP spokeswoman, said in an email.

The payments to governments gave BP the kind of good PR it desperately needed, said Daniel Keeney, president of a Dallas-based public relations firm. By giving money to communities and allowing them to spend it largely as they saw fit, BP also put a buffer between itself and any questionable spending.

"Whether the funds could be perceived as being wasted or not really reflects on the organization accepting the money rather than BP," Keeney said.

Louis Skrmetta, one of the tens of thousands of business owners and individuals still waiting to get a share of a $20 billion claims fund established by BP, finds the state and local governments' spending galling, even if it's almost all BP's money.

Skrmetta runs a three-boat fleet that has a contract with the National Park Service to ferry day trippers to Ship Island, a recreation area about 10 miles offshore from Gulfport, Miss. He can't understand why BP paid so much to governments while businesses were suffering.

"I didn't think there was much logic in it," Skrmetta said. "Now, looking back in retrospect, it was a way to win over politicians, a way to win over the media."

In February, BP asked Louisiana parishes that received up to $1 million in advance payments in May for a detailed summary of how that money has been spent. Parishes were warned they must exhaust the advance money before they can make any new claims.

Some parishes, however, have banked that money and already billed BP for expenses on top of it. Terrebonne Parish says it hasn't spent any of its $1 million advance, yet BP has paid it an additional $927,842, mostly for contractors and payroll costs.

Parish President Michel Claudet said he isn't concerned that BP will try to recover unspent advance money.

"The agreement from the beginning was that it was nonrefundable," he said.

_

The oil spill drove away tourists and sapped tax revenues, but it was a boon for private contractors and consultants. Governments have spent more than $19 million of BP's money to hire contractors, according to the AP's review.

The Louisiana attorney general's office has spent $4 million and counting of BP's money to hire outside lawyers and accountants to help piece together litigation against the company. Five of the seven law firms hired and their attorneys have poured more than $80,000 total into Attorney General Buddy Caldwell's campaign coffers in recent years.

Amber Davis, who lives with Gulf County, Fla., Commissioner Bill Williams, incorporated Statecraft LLC less than a month after oil began streaming into the Gulf. Three months later, Statecraft won a month-long, $14,468 contract to perform public information and government liaison work for the county of about 15,000 people.

Davis, who has worked in marketing and community relations, said she had planned to form her company before the spill. She also had volunteered for the county's emergency operations center for three months before she was given the contract.

"There is a perception of a conflict of interest in just about anything that anybody does," Davis said. "I guess my statement to that was that I volunteered anywhere from 15 to 18 hours a day for three months and never received a penny."

Williams said he consulted the county attorney and an ethics commission, and neither saw a problem with awarding the contract to Davis.

Gulf County awarded an identical one-month, $14,468 contract — this one for monitoring beach pollution — to Florida Eco Services, a company founded days after the rig explosion by Patrick Farrell, whose wife is on the board of the local Chamber of Commerce. Farrell says he has a background in managing and maintaining properties, as well as beach restoration.

County Attorney Jeremy Novak, who also is an attorney for Florida Eco Services, said it was a matter of giving business to locals rather than out-of-state contractors.

"It sounds like a bias, and it is, but I'm glad people in Gulf County got work and actually had the ability to feed their families," Novak said. "I don't see it as profiteering. I see it as obviously doing what you can because what you're doing for a living isn't available to you."

_

Local authorities could have taken even fuller advantage of BP's largesse had the company or state officials not nixed some requests that had no clear connection to the oil. Police in D'Iberville, Miss., for instance, were denied a $245,000 mobile command unit, a $140,000 hazardous materials vehicle and a $19,000 Harley-Davidson.

"If we had to establish barricades, they thought it would be more maneuverable," City Manager Michael Janus said of the motorcycle. "It was a bit of a reach, obviously."

Although BP footed the bill for other pricey acquisitions, some officials concede they may have to use taxpayer money to maintain them.

The Louisiana Department of Wildlife and Fisheries spent $5 million for 22 boats and the accompanying trawls, nets and hauling vehicles.

"Nobody asked me for a space shuttle or anything," said Wildlife and Fisheries Secretary Robert Barham.

BP money will cover the costs of maintaining the vessels, leasing dock space and buying fuel for at least three years, he said. Whether taxpayers will be forced to pick up these costs after that hasn't been decided.

"They don't run for free," Barham said.

Copyright 2011 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

For more information about reprints & permissions, visit our FAQ's. To report corrections and clarifications, contact Standards Editor Brent Jones. For publication consideration in the newspaper, send comments to letters

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7 winners claim Mega Millions prize

Mega Million winners claim jackpotSTORY HIGHLIGHTSAfter taxes, each of the seven winners will receive over $19 millionLast-minute ticket sales increased the jackpot to $319 millionMega Millions is played in 41 states and the District of Columbia Schenectady, New York (CNN) -- Seven New Yorkers claimed a $319 million jackpot in the multistate Mega Millions lottery Thursday.

The Albany seven, as they are being called, are co-workers at New York state's Division of Housing and Community Renewal, where they have been playing the lottery for years in an office pool.

Sharing the winning ticket were John Hilton, 57, John Kutey, 54, Gabrielle Mahar, 29, Tracy Sussman, 41, Kristin Baldwin, 42, Leon Peck, 62, and Mike Barth, 63.

Barth said another customer cut in front of him as he reached for a Snickers candy bar before buying the ticket at Coulson's News store in Albany. That customer bought a lottery ticket, he said.

"I thought about saying something, but let it slide," he said. "I behaved myself." The next ticket purchased at the store was the winning ticket, he said.

The group chose the cash option, so they are receiving a one-time, lump-sum payment of $202.9 million.

After taxes, each will pocket over $19 million.

Winning numbers in the Friday night drawing were 22, 24, 31, 52 and 54. The Mega Ball number was 4.

Last-minute ticket sales increased the jackpot from $312 million to $319 million, the New York Lottery said.

Mahar -- who watched the drawing at home with her boyfriend -- said she hadn't decided what to do with the money. But she says that she at least wants a dishwasher.

Mega Millions is played in 41 states and the District of Columbia, and is the biggest jackpot game in the country, according to the lottery.

The $319 million jackpot is the sixth-largest Mega Million jackpot ever and the largest for a single ticket ever claimed in New York, said state lottery spokeswoman Carolyn Hapeman.

CNN's Alison Kosik contributed to this report.

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