Gilbert must return for questioning in Quicken case

Breana Noble
The Detroit News

Dan Gilbert must return to be questioned further by the U.S. Justice Department in the government's fraud case against Quicken Loans, a judge ruled.

Detroit businessman Dan Gilbert will continue his deposition with the U.S. Justice Department in its lawsuit against Quicken Loans, a federal judge ruled Wednesday.

The order from U.S. District Judge Mark A. Goldsmith on Wednesday came after Gilbert and Jeffrey Morganroth, Quicken's lawyer, walked out of a July 20 deposition. They left after Gilbert, the chairman of Rock Holdings, Quicken's parent company, answered questions for about four hours.

Judge Mark Goldsmith granted the Justice Department's request to depose Gilbert for one additional hour. He said federal rules limit depositions to seven hours "unless otherwise stipulated or ordered by the court."

According to the motion filed by the government, it is looking to question Gilbert over quality-control reports, his awareness of Quicken's "failure to fire employees known to have committed fraud and misrepresentation" and the company's staff reduction in 2008, a time when the government said Quicken was "demanding higher production." 

A lawsuit filed by the government in April 2015 against Quicken claims the company ignored "red flags" in dicey home loans that didn't meet federal standards, which the company denies. It charges that Quicken's loans involved inflated appraisals, poor credit risks and borrowers with insufficient incomes.

Morganroth said he had the expectation the deposition would conclude after four hours, having discussed it with the Justice Department beforehand.

But Goldsmith said in his order that if Quicken wished to limit Gilbert’s deposition due to his schedule or alleged limited role in the transactions, then Quicken should have sought a protective order.

"I don't think that ruling is of any significance," Morganroth told The Detroit News. "I have no concerns about the lawyers questioning Mr. Gilbert for another hour. They didn’t get anywhere at all."

The government has alleged that Quicken had a culture of bending the rules and gave “speed bonuses” to underwriters. The mortgage company failed to disclose the problems with the Federal Housing Administration-insured loans that cost the federal government millions of dollars when they went bad, federal lawyers contend.

Quicken has said it has represented the FHA’s “gold standard” for underwriters.

In a previous hearing, Samuel J. Buffone, a trial attorney with the Justice Department's civil frauds branch, told Goldsmith the alleged scheme involved the highest levels of management at Quicken and that he would be able to introduce “hundreds” of examples of loans that were part of the scheme.

A court decision in December, however, limited the department to seek recovery on claims from April 23, 2009, and after. The government's original complaint alleges that Quicken's fraudulent conduct occurred between Sept. 1, 2007, and Dec. 31, 2011.

According to a Sept. 7 court order, the Justice Department reduced the number of loans and findings at issue from 487 on Sept. 1, 2017, to 125.

Morganroth said the government is seeking recovery on only 100 of those loans; the other 25 are to help bolster the government's claims against the company. He said Quicken Loans originated 100,000 FHA loans during the case's four-year timeframe.

"The government had to admit," Morganroth said, "that the loan findings were baseless."

The Justice Department declined to comment because the case is ongoing.

Goldsmith in the Sept. 7 court order said the reduction in loan findings at issue reduces the burden of expert testimony the government needs to prepare.

Buffone said in an earlier hearing that evidence included emails from company officials discussing the “bastard income” of borrowers. One email described how a customer was approved for a loan after he stopped paying other bills and his credit score dropped 100 points.

Morganroth said Quicken is top in quality and quantity for FHA loans, has the lowest default rate and continues to do business with FHA.

Court documents filed by Quicken attorneys say the company can prove it had proper underwriting practices, complied with program and contractual requirements, and did not make false claims. It denies the existence of speed bonuses.

Since the financial crisis, the Justice Department has reached settlements with several major lenders, including J.P. Morgan Chase & Co., SunTrust Banks Inc. and U.S. Bancorp, over poorly underwritten FHA loans.

Gilbert has said the company won’t settle. Morganroth said at the appropriate time, Quicken will motion to dismiss the remaining claims.

The Justice Department originally filed the case in Washington, D.C., but Quicken won its motion to move it to Detroit. A jury trial is scheduled for 8:30 a.m. on March 11.

Staff Writer Robert Snell contributed.