A federal judge has blocked the bid of a former appraisal reviewer who blew the whistle on alleged fraud at a failed suburban bank from collecting as much as a quarter of any settlement the directors of the bank may reach with the Federal Deposit Insurance Corporation, upholding the ruling of another judge who found the FDIC cannot be considered a “government” agency for the purposes of the false claims law upon which the former bank employee has staked his claim.
On Nov. 30, U.S. District Judge Sharon Johnson Coleman denied the motion brought by Kenneth Conner, who had worked for Mutual Bank of Harvey, to intervene in the FDIC’s litigation against the bank’s directors and claim his “relator’s share” of any amount the FDIC collects in any potential settlement deal.
Coleman’s ruling backs up the decision of a federal magistrate judge, who had found in September that Conner’s claim was barred under the federal False Claims Act because, in this case, “the FDIC did not constitute the government as contemplated” in the law, and therefore “Conner did not have a legally protectable interest in any settlement money that the FDIC recovered in that action.”
The ruling arose as the latest decision in a court fight dating back to 2011. In June of that year, Conner filed suit, initially under seal, on behalf of the U.S. government, against Mutual Bank’s owners and officers, as well as Oakbrook Terrace-based Adams Appraisal Corporation. Named defendants included Mutual Bank’s owner and chairman Pethinaidu Veluchamy; the bank’s president Amrish Mahajan; other members of the Veluchamy family, who were identified in court documents as owners of the bank and members of its board; other members of the bank’s board, including Steven Lakner, James Roth, Ronald Tucek, Patrick McCarthy and James Regas; and several of the bank’s vice presidents.
According to published reports, the Veluchamy family held 95 percent of the shares in Mutual Bank’s holding company.
In his action, Conner alleged the bank and Adams Appraisal had for years worked to artificially inflate appraised values for properties serving as collateral in commercial loans made by the bank, so as to mislead federal banking regulators regarding the bank’s exposure to risk.
Conner, who worked for the bank from 2000-2007, said in his complaint he repeatedly raised his concerns over the appraised values for two years after he first discovered the alleged fraud in 2005, but was allegedly told by his superiors that the bank’s officers knew of the inflated appraisals and wanted him to maintain silence and sign off on the loans.
Conner was fired in 2007, according to his complaint.
After bringing the action in 2011, it was served upon the U.S. government, which declined to intervene in the matter.
In October 2011, the FDIC brought its case against most of the same bank officials Conner had sued, seeking $130 million in damages from the Veluchamy family and others involved in leadership at the bank, who the FDIC alleged “looted” the bank in the months and days preceding its failure in 2009.
Both cases remain pending in Chicago federal court.
In January 2015, Conner requested the court consolidate his case with the FDIC’s. However, he withdrew the motion before Coleman could rule on it.
About five months later, however, Conner returned to court, asking the court to allow him to intervene in the FDIC action, and claim his share of the FDIC’s money. In that motion, Conner alleged “the FDIC is attempting to prevent (him) from being rewarded for uncovering a complex fraud scheme that fooled FDIC regulators for more than five years and resulted in harm to the United States of approximately $700 million.”
He said he believed “the FDIC is now on the brink of recouping some of that loss,” and, under the False Claims Act, he, as a whistleblower, should be entitled to 15-25 percent “of any recovery from the government’s ‘alternate remedy.’”
Conner asserted failing to allow him to intervene in the case and claim his “incentive… would not only be incredibly cynical and unjust, it would discourage future citizens from coming forward and assisting the government in discovering future fraud schemes.”
In ruling on his motion, though, the magistrate judge said, while Conner may have assisted the FDIC, the FDIC is not an agency of the U.S. government, as defined in the False Claims Act, and therefore he “was not entitled to a ‘relator’s share’ of the proceeds of that action because it was not an alternate remedy being sought by the government in lieu of joining Conner’s” lawsuit.
Conner filed no objections to the magistrate judge’s decision, instead filing a motion on Aug. 4 in Coleman’s court, asking her to award him the relator’s share. Coleman said because Conner did not object before the magistrate judge’s report and recommendation was adopted by the court, he should be “precluded from relitigating” the same question.
Conner is represented in the action by attorney Patrick M. Jones, of PMJ PLLC, of Chicago.
The FDIC is represented in the action by the firm of Nixon Peabody, of Chicago.
Defendants in the actions are represented by the firms of the Franklin Law Group, of Northfield; Katten & Temple, of Chicago; Tressler LLP, of Chicago; the Law Offices of Richard Linden, of Chicago; the Law Offices of Tom V. Mathai, of Chicago; and Tribler Orpett and Meyer, of Chicago.