[ by Melanie Gretchen ]

Citigroup's mortgage-insurance fraud case marked the end of the line for 2 executives.  Jeffery Polkinghorne, a senior risk manager at the CitiMortgage division, and Donald Houghtalin, a compliance officer at the unit, were among CitiMortgage executives named in suit that resulted in a $158.3 million settlement and an admission of wrongdoing by the bank.

The Lawsuit

• The 3rd-largest lender in the U.S. saddled taxpayers with losses after falsely declaring defective home loans fit for a federal insurance program
• The government alleged that some bank officials pressured other employees to change reports on faulty loans
• Specifically, the U.S. accused Citigroup of violating requirements of a Federal Housing Administration program that allowed the bank to decide which home loans would be federally insured against loss.

As the U.S. made its case against the bank, it joined a false-claims lawsuit filed by Sherry Hunt, a whistle-blower and CitiMortgage quality-control VP, who alleged that executives buried her findings on defective loans.  Near the end of his 16 years at the bank, Polkinghorne asked Hunt and a colleague to stay in a conference room after a meeting in March 2011, where told them that the number of loans classified as defective would have to fall or it would be “your asses on the line," Ms Hunt said.  [See our Behind the News story, "Whistle-Blower: $31 Million; Citigroup: <$??? Millions>".]

For his part, Houghtalin was responsible for making sure CitiMortgage followed government guidelines so it could continue issuing U.S.-insured home loans.  He knew that CitiMortgage had broken the rules when he certified – or caused Polkinghorne to certify – in documents that the opposite was true, according to Ms. Hunt’s false-claims suit.

Aftermath. Since Citi admitted to falsely stating that some loans met FHA and U.S. Department of Housing and Urban Development standards, it announced that Polkinghorne, who was in charge of loan quality, will continue to work for Citigroup until the end of September, according to the memo.  Neither Polkinghorne nor Houghtalin was sued by the government.

For further details, go to [Business Week, 9/18/12].