Qui Tam

US Files qui tam suit against Capmark Finance in California

By Brian F. LaBovick

Capmark Finance Inc., a California-based mortgage lender, is the target of a qui tam suit filed by the Department of Justice. In this suit, the Justice Department alleges that the company has committed mortgage fraud and is seeking reparations under the False Claims Act.

The suit against Capmark Finance stems from what the Department of Justice claims as fraudulent statements by the company on applications for federal mortgage insurance for two residential nursing home facilities. The facilities, Canoga Care Center, located in Canoga Park, California, and Hudson Valley Care Center, based in Ghent, New York, were both covered by the U.S. Department of Housing and Urban Development (HUD) under a federal program that guarantees mortgages that are used to purchase healthcare facilities. Both of these residential care institutions have both defaulted on these guaranteed loans and HUD has since had to pay approximately $26 million under the terms of the mortgage insurance agreement.

The False Claims Act, sometimes referred to as the Lincoln Law, provides for liability against entities that make false claims in order to gain government funding. An entity can be charged as much as three times the amount fraudulently taken from the government along with other civil penalties, under what is commonly known as a qui tam suit.

If a qui tam suit, is brought by a whistleblower also known as a "relator", the whistleblower may be entitled to 15-30% of the government's total recovery. This includes damages for the false bills, tripled, plus civil penalties of from $5,000 to $10,000 per false claim. However, it is important to note, that the whistleblower must have complied with statutory requirements if they are to receive a portion of the whistleblower reward.

Since the Department of Justice alleges that Capmark Finance falsified information on paperwork in order to receive protection from the Department of Housing and Urban Development, the False Claims Act covers this case of suspected mortgage fraud. The United States is also seeking the highest possible dollar amount from Capmark in its suit.

According to Tony West, Assistant Attorney General for the Justice Department's civil division:

"Mortgage fraud is a top priority for this administration, especially when public dollars are at stake.  This complaint sends a clear message that we will aggressively pursue allegations of fraud on federal mortgage insurance programs, which are so vitally important to this economy."

Capmark Finace had its early beginnings in 1994, when the company operated under General Motors ownership as GMAC Commercial Mortgage Corporation. In 2006, GM sold its majority interest in GMAC Commercial to a consortium including Five Mile Capital Partners, Kohlberg, Kravis Roberts & Co., and Goldman Sachs. The company was then renamed as Capmark Financial Group. Capmark now bills itself as a diversified company that offers a variety of financial services in the commercial real estate industry. Capmark's three areas of focus include investments and funds management, mortgage banking and lending, and servicing
 

Full post as published by Whistleblower Law Blog on June 14, 2009 (boomark / email).