“The 49-year-old mother of two became a face of housing-crisis misdeeds when the Justice Department pursued civil-fraud charges against her for her work at Countrywide. A jury in 2013 found her liable, and a federal judge ordered her to personally pay $1 million, making her one of the few financial executives to be held to account for the housing bust. Until last month: A federal appeals court threw out the verdict against Ms. Mairone,…

…who is now divorced and goes by her maiden name, Steele. The court ruled the government hadn’t proved her actions met the legal definition of fraud. For Ms. Steele, it was exoneration…Indeed, to Ms. Steele, her experience is inexplicable. She said she had no idea why the government chose her as the lone executive to prosecute in the case. “That is something I think about a lot,” said Ms. Steele. “Why me?”…Before she was sued, Ms. Steele’s attorney, Marc Mukasey—a former federal prosecutor and son of former attorney general Michael Mukasey—told Manhattan U.S. Attorney Preet Bharara that neither Ms. Steele nor Bank of America had done anything wrong. Mr. Bharara listened. But weeks later he added Ms. Steele as a defendant to the lawsuit, describing her as the architect. “Don’t worry, Marc,” Mr. Bharara told Mr. Mukasey at their meeting, according to Mr. Mukasey. “It’s just a civil case.” A spokesman for Mr. Bharara declined to comment. Civil or not, the case upended Ms. Steele’s life. Her daughter was asked if the woman in the news was her mom. Friends stopped returning her calls. “I go from running a million miles an hour, executing, managing large groups of people, to I’m all by myself, and that was pretty scary,” Ms. Steele said. On the eve of her trial, the U.S. attorney’s office made an offer to settle if she would admit to wrongdoing, she said. She refused…. After the ruling, Ms. Steele’s friends sent her wine, flowers and cookies. She left J.P. Morgan after the trial, and now runs a consulting business from her home outside Philadelphia. Of her time at Countrywide, she says, “I wouldn’t have done anything differently.””, Christina Rexrode and Aruna Viswanatha, “Villain or Victim? The Problem With Assigning Blame for the Financial Crisis”, The Wall Street Journal, June 8, 2016

“Ms. Steele is of course a victim of the government’s McCarthyism-style blame game involving crisis era bankers/mortgage lenders. The Federal Appeals Court ruling proves she is a victim and Mr. Bharara, The Justice Department, and our government should be held to account and financially compensate her, for inappropriately destroying her reputation and substantially damaging her ability to make a living for herself and her family. Our government officials breached her inalienable rights to Life, Liberty, and The Pursuit of Happiness. How do I know this to be true? As a crisis-era banker, I experienced something similar from the S.E.C. and FDIC (no allegations were ever proved and everything that went to court I won), when I did nothing wrong. To this day, I know that no banker could have done more than I.” Mike Perry, former Chairman and CEO, IndyMac Bank

Markets

Villain or Victim? The Problem With Assigning Blame for the Financial Crisis

Former Countrywide executive Rebecca Mairone’s fall and rise highlights the struggle to prosecute individuals over the housing bubble

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Rebecca Mairone, now Rebecca Steele, at her lawyer’s office in New York last month. Why the government chose her as the lone executive to prosecute in the Countrywide mortgage case, she says, “is something I think about a lot. Why me?” PHOTO: SASHA MASLOV FOR THE WALL STREET JOURNAL

By Christina Rexrode and Aruna Viswanatha

Rebecca Mairone was either a villain or victim of the financial crisis. The legal battle to determine the answer shows how hard it still is to definitively say who was responsible for the housing bubble.

The 49-year-old mother of two became a face of housing-crisis misdeeds when the Justice Department pursued civil-fraud charges against her for her work at Countrywide Financial Corp. A jury in 2013 found her liable, and a federal judge ordered her to personally pay $1 million, making her one of the few financial executives to be held to account for the housing bust.

Until last month: A federal appeals court threw out the verdict against Ms. Mairone, who is now divorced and goes by her maiden name, Steele. The court ruled the government hadn’t proved her actions met the legal definition of fraud.

For Ms. Steele, it was exoneration. In her first interview since the 2012 case was filed, Ms. Steele emphasized she had done nothing wrong and denied any mistakes in a controversial mortgage-approval program she helped create at Countrywide, called “Hustle.” When she heard about the appellate ruling, she said, she texted her daughter at high school, who replied, “Are you sure?’”

“It was such a long time coming,” Ms. Steele said.

For the government, which has gone after few executives related to crisis-era acts, it was a stunning setback.

For Edward O’Donnell, a former colleague of Ms. Steele who filed two whistleblower lawsuits alleging fraud at Countrywide, one of which led to the action against her, the appeals court decision didn’t change anything. He kept the nearly $58 million he collected in the other case.

The contrasting results show the muddy and often maddening outcomes of authorities’ efforts to prosecute individuals for the housing bubble. Lawyers add it highlights that doling out blame—and credit to those who blew the whistle—is rarely as simple as the public would hope.

“That’s the law for you,” said Samuel Buell, a former prosecutor who is now a professor at Duke University’s law school. “It doesn’t always come out cleanly.”

Indeed, to Ms. Steele, her experience is inexplicable. She said she had no idea why the government chose her as the lone executive to prosecute in the case. “That is something I think about a lot,” said Ms. Steele. “Why me?”

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Rebecca Steele PHOTO: SASHA MASLOV FOR THE WALL STREET JOURNAL

In the late 1990s, Ms. Steele was working for a cubicle manufacturer. The company wanted her to move to London, but she didn’t want to move her family. Although she was a chemical engineer by training, she started working in mortgage operations.

In 2006, Countrywide recruited her to work on upgrading technology systems and acquiring new customers. She became chief operating officer of a division that later housed Hustle.

Ms. Steele’s saga began in 2012 when the U.S. attorney’s office in Manhattan joined Mr. O’Donnell’s lawsuit against Bank of America Corp., which acquired Countrywide in 2008. At the time, she was named in the complaint but wasn’t being sued. She had moved to J.P. Morgan Chase & Co., where she ran the bank’s review of foreclosures.

Ms. Steele said she didn’t remember Hustle at first. “I had about 20 other projects going on, including laying off 5,000 people in that time.”

The Hustle program eliminated some quality checks on mortgages, with the goal of making loans more quickly.

‘I go from running a million miles an hour, executing, managing large groups of people, to I’m all by myself, and that was pretty scary.’

—Rebecca Steele, on being named a defendant in the lawsuit over Countrywide mortgages

At trial, the government portrayed it as a means of pushing through shoddy mortgages, and Ms. Steele as quashing objections to it. Ms. Steele said the program was meant to eliminate unnecessary red tape and transition the unit into higher-quality mortgages.

Before she was sued, Ms. Steele’s attorney, Marc Mukasey—a former federal prosecutor and son of former attorney general Michael Mukasey—told Manhattan U.S. Attorney Preet Bharara that neither Ms. Steele nor Bank of America had done anything wrong.

Mr. Bharara listened. But weeks later he added Ms. Steele as a defendant to the lawsuit, describing her as the architect. “Don’t worry, Marc,” Mr. Bharara told Mr. Mukasey at their meeting, according to Mr. Mukasey. “It’s just a civil case.”

A spokesman for Mr. Bharara declined to comment.

Civil or not, the case upended Ms. Steele’s life. Her daughter was asked if the woman in the news was her mom. Friends stopped returning her calls. “I go from running a million miles an hour, executing, managing large groups of people, to I’m all by myself, and that was pretty scary,” Ms. Steele said.

On the eve of her trial, the U.S. attorney’s office made an offer to settle if she would admit to wrongdoing, she said. She refused.

At trial, Mr. O’Donnell acknowledged Ms. Steele, his boss, had passed him over for a promotion. Her lawyers presented an email from another employee warning her Mr. O’Donnell was after her job.

The jury sided with the government’s portrayal. And U.S. District Judge Jed S. Rakoff, who presided over the trial, later described Hustle as a “vehicle for a brazen fraud” and Ms. Steele as the “relatively new employee who had to prove herself [and] most aggressively pushed forward the…fraud.”

The appeals court disagreed, and threw out the verdicts against both Bank of America and Ms. Steele. The court said actions by the bank and Ms. Steele might be considered an “intentional breach of contract” but didn’t constitute fraud.

Mr. O’Donnell, 51, bought a $2 million home in Pittsburgh after receiving the whistleblower award and opened a real-estate investment firm, according to public records.

David Wasinger, Mr. O’Donnell’s lawyer, said his client had taken a risk in becoming a whistleblower. “Ed’s livelihood, his reputation … was on the line,” Mr. Wasinger said. “Frankly, it was not that much money,” he added, considering the value of Mr. O’Donnell’s information.

After the ruling, Ms. Steele’s friends sent her wine, flowers and cookies. She left J.P. Morgan after the trial, and now runs a consulting business from her home outside Philadelphia. Of her time at Countrywide, she says, “I wouldn’t have done anything differently.”

Posted on June 9, 2016, in Postings. Bookmark the permalink. Leave a comment.

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