The FBI and the Securities and Exchange Commission may have known about alleged fraudulent conduct by Wells Fargo & Co. concerning the receipt of low-rate loans, but the Federal Reserve didn’t know, and therefore a false claims case against the banking giant must be allowed to proceed, whistle-blowers told a New York federal court.
Wells Fargo is mistaken in saying that the case lacks materiality, the whistle-blowers said, because the Federal Reserve didn’t have actual knowledge of alleged misconduct when issuing loans.
Therefore, the court should deny Wells Fargo’s motion to dismiss, they said.
Concerns Not Shared
The whistle-blowers’ complaint says the FBI and the SEC received disclosures about Wells Fargo, but doesn’t say the Federal Reserve received them or that the SEC and FBI relayed concerns about Wells Fargo to the Federal Reserve. This is “crucial” to the materiality defense because the standard under Universal Health Servs., Inc. v. United States ex rel. Escobar is whether the Federal Reserve banks making the loans had actual knowledge of misconduct, they said.
Actual knowledge of one government agency isn’t imputed to other agencies, they said.
Evidence might show that the Federal Reserve knew Wells Fargo had financial problems, but that doesn’t sufficiently establish actual knowledge at this stage, they said.
Grant & Eisenhofer P.A. represented the whistle-blowers.
The case is United States ex rel. Kraus v. Wells Fargo & Co., No. 11-cv-05457, E.D.N.Y., opposition to motion to dismiss 1/11/18.
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