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Bank of America Found Liable for Fraud in Historic Judgment

John Maxfield
October 23, 2013

Photo by Brian Negin.

The issue of whether mortgage originators committed systematic fraud during the crisis has been settled once and for all. Earlier today, a jury concluded that Countrywide Financial, now a unit of Bank of America (NYSE: BAC), defrauded Fannie Mae and Freddie Mac by selling them tens of thousands of defective mortgages.

Although numerous banks have settled similar claims out of court -- it was reported last week, for instance, that JPMorgan Chase (NYSE: JPM) is in the process of concluding a $13 billion settlement with the U.S. government -- this is the first time a bank has actually been held liable by a court for misleading the government about activities relating to the financial crisis.

This distinction seems nebulous, but don't let that fool you. Until now, banks have adamantly denied that they intentionally deceived anyone. Sure, their models and assumptions about the housing market were wrong. But so were everybody else's. And being wrong about something is a far cry from committing fraud.

At least for Countrywide and therefore Bank of America, however, a lack of knowledge or intent to deceive is no longer a viable defense. The formal legal definition of