Justice Department Weighs in Against Wells Fargo in a Whistle-Blower Suit

Justice Department Weighs in Against Wells Fargo in a Whistle-Blower Suit

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Mr. Bishop and Mr. Kraus argued that the hidden problems at Wachovia, which bought World Savings in 2006, made the bank appear financially stronger than it actually was. They contend that this represented a fraud on the government because the bank borrowed regularly from the Federal Reserve and received financial assistance during the crisis.

Paul Bishop, who worked at an institution taken over by Wells Fargo, is one of two whistle-blowers in a lawsuit against the bank.

Credit
Elizabeth D. Herman for The New York Times

Had regulators known the bank’s true financial position, it would have had to pay more for the federal aid it received, the complaint says. As a result, taxpayers should receive damages representing the difference between what the bank should have paid for assistance and what it actually paid.

In a statement, Mary Eshet, a Wells Fargo spokeswoman, said: “We continue to believe these claims are without merit, as the previous court decisions have confirmed. We look forward to the opportunity to again present legal arguments to the Second Circuit Court of Appeals.”

The whistle-blower case has had its ups and downs. In 2014, the Justice Department declined to intervene. The Federal District Court that heard the case dismissed it in 2015, and the United States Circuit Court of Appeals for the Second Circuit affirmed that decision in 2016.

But last February, the Supreme Court ruled that some courts had been applying too narrow a legal standard when hearing lawsuits filed under the False Claims Act. The Supreme Court remanded the Wells Fargo case to the Second Circuit for reconsideration.

Tejinder Singh, a partner at Goldstein & Russell who represents Mr. Bishop and Mr. Kraus, said the government’s filing in the case will benefit future whistle-blowers.

“Because the government is the intended and principal beneficiary of cases brought under the False Claims Act, its position matters a great deal when it comes to the enforcement and interpretation of the statute,” Mr. Singh said in an interview.

Mr. Bishop said he was thrilled the case had finally attracted the Justice Department.

“As Martin Luther King said, the arc of the moral universe is long, but it bends toward justice,” Mr. Bishop said, referring to Dr. King’s paraphrase of the 19th-century abolitionist and Unitarian minister Theodore Parker. “We’ve been at this a long time, and a lot of people, for whatever reason, haven’t shown up. Now the government has, and I’m happy.”

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