Wells Fargo has reportedly found itself ensnared in yet another housing-related legal tangle.
The Department of Justice is investigating whether the scandal-plagued bank colluded with developers to submit lowball bids on tax credits for low-income housing projects, according to a Bloomberg report. Citing sources close to the matter, Bloomberg reported that an investigation that started in Miami has been referred to the Justice Department’s corruption unit, which is now investigating Wells Fargo deals across the country.
The tax-credit program at the center of the investigation was created in the 1980s. The credits are federally funded, but local agencies hand them out to developers, according to Bloomberg. The developers then receive bids of the credits from investors, including banks, that want to offset income taxes. Banks are the biggest buyers of the tax credits because they get both a tax write-off and credit under the Community Reinvestment Act, which requires financial institutions to invest in low-income areas where they do business, Bloomberg reported. Among banks, Wells Fargo is the largest purchaser, investing $9 billion in the program over the last five years.
According to Bloomberg’s sources, the Justice Department is investigating whether the megabank colluded with developers to drive down the price of the credits. In return, Wells Fargo would allegedly offer developers better loan terms or agree to fund deals it might not normally fund. Michael Cox, a former low-income developer in Miami who said he was cooperating with the investigation, told Bloomberg that in some instances Wells Fargo would move tax-credit money from one deal to another, which is not allowed. He also said that the bank would make the price of tax credits on one deal contingent on what it would pay for tax credits in other deals, which is a violation of the law.
Assistant US Attorney Michael Sherwin, who has spent years investigating fraud in the low-income housing tax-credit program in Florida, wouldn’t comment specifically on Wells Fargo, according to Bloomberg. However, he told the news service that his investigation was probing syndicators and lenders.
“We see potential anomalies in the purchase prices that suggest theft,” Sherwin told Bloomberg.
Wells Fargo recently disclosed in a financial filing that government agencies were investigating its purchase and negotiation of the tax credits, but didn’t elaborate further.
Paying less for the tax credits drives up the government’s cost to provide them, Bloomberg said. It might also require some deals receiving more credits than they would normally need, thus depriving other developments of those credits.
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