By Joseph Ax
NEW YORK (Reuters) - Wells Fargo & Co said Monday that a U.S. government request to add one of its executives as a defendant in a fraud case may be in retaliation for the bank's decision to cut off settlement talks.
In a motion filed in New York federal court opposing the Justice Department's request to add executive Kurt Lofrano as a defendant, Wells Fargo said it told the government it would no longer engage in settlement negotiations on October 29 after months of discussions.
Three days later, the government for the first time said it would seek to add an unnamed executive, later revealed to be Lofrano, to its year-old lawsuit accusing the bank of fraud during the lead-up to the financial meltdown.
"In the absence of any other explanation for the lengthy delay, this intervening event - within days of the notice - raises questions about whether the United States acted in bad faith, in retaliation for Wells Fargo's message," the bank's lawyers said in court papers.
The bank questioned why the Justice Department waited a year before deciding to pursue claims against Lofrano, who has joined a very short list of individual executives to be sued by the government over actions that contributed to the financial crisis.
The U.S. Attorney's office in Manhattan declined to comment on the filing.
Wells Fargo, the country's largest mortgage lender, is accused of misleading the U.S. Department of Housing and Urban Development into believing defective home loans qualified for insurance from the Federal Housing Administration, causing the government hundreds of millions of dollars in losses.
The bank has denied the allegations.
On November 22, the Justice Department asked U.S. District Judge Jesse Furman for permission to add Lofrano, who it said played a "critical role" in the bank's alleged failure to report the loans' flaws to the government.
He worked as vice president for quality control from 2002 to 2010, a position that made him responsible for the bank's self-reporting policies, the government said.
He remains employed at the bank. In a statement following the government's request, Wells Fargo said Lofrano was a "well respected team member" and that it stood by him unequivocally.
Furman denied the bank's motion to dismiss the lawsuit in September.
The case is U.S. v. Wells Fargo Bank NA, U.S. District Court, Southern District of New York, No. 12-07527.
(Reporting by Joseph Ax; Editing by Bernard Orr)